The news today, leaked by anonymous someones who'd like you to believe that Google is doomed, I suppose, is that Google is now being investigated by the FTC regarding licensing of its standards-essential patents. As you know, both Apple and Microsoft, linked by common goals regarding Android, both claim that standards-essential patents owners are not allowed to seek injunctions as a remedy and that they are asking too much to license their patents. But
there was just a decision at the ITC by Administrative Law Judge E. James Gildea on September 14th regarding the dispute there between Apple and Samsung, where Apple raised that defense and accused Samsung of improper behavior before ETSI, claiming it was violating its FRAND obligations and asking for too much to license. The Administrative Law Judge in his "Initial Determination" ruling utterly and definitely rejected Apple's FRAND allegations and completely exonerated Samsung. He ruled that injunctions are definitely available at the ITC for standards-essential patents, and that there is zero evidence of any wrong behavior by Samsung. Furthermore, the judge told Apple, which had claimed that the amount Samsung asked for licensing was too high to be a FRAND offer, that Apple can't unilaterally decide what is or is not a fair price. If it had objections, it could negotiate, which Apple failed to do, or there is a mediation process at ETSI it could have used, which it also apparently failed to do. Instead, the ruling says, the court battles are about negotiating a lower price. The FTC will no doubt be informed of all this, but I wanted you to know about it too. If you've wondered what the FRAND issue is all about, you can find out by reading the section on the FRAND claims in this ruling, which I've done for you as text. And Samsung has already brought this ruling to the attention of Judge Lucy Koh, the judge presiding over the Apple v. Samsung case in California.
The judge not only totally debunks the arguments Apple brought, he goes further and rules differently than the jury in the case recently decided in California US District Court, Apple v. Samsung on the question of patent exhaustion. He writes that he can't rely on that jury's verdict, because it arrived at contradictory conclusions. Something really is wrong with that jury's verdict, and now a judge at the ITC has said so. The rest of the reasons for utterly rejecting Apple's FRAND claims are fascinating and, to me, refreshing. The ITC ruling is huge, and while I have it all for you as PDFs, chopping it into 14 chunks for ease of downloading, I only did the text for you of the section on Apple's FRAND claims, which you can find in sections 8 and 9.
Jump To Comments
Can Standards-Essential Patent Owners Seek Injunctions at the ITC? - ITC: Yes
The ruling points out that an injunction is
ITC's only remedy. Unlike district courts, it doesn't decide issues like money damages. So, if it were true, as Apple argued, that FRAND patents can't be used to seek injunctions, then there could be no FRAND patents brought to the ITC. But there have been many such, and in no case was it held that FRAND patents didn't belong before the ITC or that injunctions were not available to the owners of FRAND patents. Finally some common sense. What's happening is indeed that Apple, and hence Microsoft, who makes similar claims about FRAND patents, are trying to make new law, esentially, according to this ruling, to get the price down. Besides,
the judge points out that ETSI has a procedure for settling ETSI disputes. And there is no evidence Apple even tried it.
In any case, the
ITC has broader goals than ETSI or than the private interests of the parties to a patent dispute in a civil court, so none of the cases, such as the one recently by Judge Posner in Apple v. Motorola, apply to the ITC, the judge writes. The ITC must consider the interest of the public at large, and so he concludes that FRAND provisions do *not* preclude injunctions as a remedy:
c) Findings and Conclusion of the Administrative Law Judge
The Administrative Law Judge concludes that ETSI and its FRAND provisions do not
preclude the imposition of Section 337 remedies in investigations in which the Commission
determines that the authorizing statute is violated by reason of the importation into the United
States of articles that infringe a valid and enforceable United States patent. Section 337
investigations are different than private patent suites in district courts, where damages or other
forms of personal relief are sought. Section 337 investigations have a wider scope than the
private interests of the litigants, as they include the interest of the public as well. In Section 337
investigations, the United States International Trade Commission can exclude infringing articles
from entry into the United States by offending parties and can issue cease and desist orders, but
the statute does not authorize the Commission to provide compensatory relief to the complaining
party. In this respect, the subject of Judge Posner's order in the Motorola case is inapposite,
since it essentially concerns an issue of election of remedies, or waiver thereof, which is not the
gravamen of a Section 337 investigation.
Section 337 investigations are time sensitive, because of the irremediable effects that
unfair competition, including entry of patent infringing articles, might have on domestic
industries in the United States, and the policies and procedures established by ETSI are not
necessarily compatible with the mandate of the United States International Trade Commission,
for prompt and preventive action. To be more specific, the ETSI states as follows:
Any violation of the POLICY by a MEMBER shall be deemed to be a breach, by
that MEMBER, of its obligations to ETSI. The ETSI General Assembly shall
have the authority to decide the action to be taken, if any, against a MEMBER in
breach, in accordance with the ETSI statutes.
(RX-0710, Clause l4.) In the ETSI Guide on IPRs, it is stated: "The purpose of the ETSI IPR
Policy is to facilitate the standards making process within ETSI. In complying with the Policy
the Technical Board should not become involved in legal discussion on IPR matters." (RX-0713
at Clause l.l.) Elsewhere it states: "[I]t should be noted that once an IPR (patent) has been
granted, in the absence of an agreement between the parties involved, the national courts of law
have the sole authority to resolve IPR disputes." (Id. at 4,3.) The Guide also states that "ETSI
MEMBERS should attempt to resolve any dispute related to the application of IPR Policy
bilaterally in a friendly manner[]" and [s]hould this fail, the MEMBERS concerned are invited to
inform the ETSI GA in case a friendly mediation can be offered by other ETSI Members and/or
the ETSI Secretariat." (Id.) This procedure, while accommodative and suited to seeking
harmony between and among the consensus-building ETSI membership, is also a prescription for
a delayed and protracted dispute-resolution process that relies on the good faith and willingness
by the parties to settle their disputes themselves, in an amicable manner, an ideal that usually
fails in patent cases. Section 337 investigations have a wider concern than a desire to achieve
voluntary resolutions in patent disputes where the interests of the patties may not coincide with
the interest of the public at large, and the Commission's mandate should not be subordinated to
the ulterior objectives of the ETSI.
As a practical matter, if the ITC were precluded from performing its mandate as set forth
in the authorizing statute, an infringing party could, by making unrealistic counter-offers to the
patent holder, while claiming that such counter-offers more accurately reflect FRAND than the
offers proposed by the patent holder, hold up or frustrate Section 337 investigations. As is
discussed in the following section, there is disagreement between Samsung and Apple about
what is a fair, reasonable, and non-discriminatory license with respect to Samsung's standards-essential patents. According to ETSI, the national courts of law, not ETSI, resolves patent
disputes, absent the parties' agreement, as stated in Clause 4.3 of ETSI Guide on IPRs; but if that
extends to deciding what is FRAND, any uncooperative party can do an end-around of a Section
337 investigation in cases of standards essential patents. That is, of course, exactly what Apple and Microsoft have been trying to do. And this judge was having none of it. There is much more there to read, and I strongly encourage you to slog through it, because it ends up that the FRAND claims being made don't hold water at all with this ITC judge, and his reasons make a lot of sense. If they stand and survive the inevitable appeal, I wonder if Apple and Microsoft spent money foolishly on "analysts" to advise them on FRAND issues.
Was the Samsung Price to License Violative of Frand Obligations? - ITC: No
Apple also claimed that Samsung's offer to license was so pricey it violated its FRAND obligations, but the judge didn't accept that either:
The Administrative Law Judge concludes that the evidence does not support Apple's allegation that Samsung failed to offer Apple licenses to Samsung's declared-essential patents on FRAND terms. Patents have the attributes of personal property. 35 U.S.C. § 261. Their value, in terms of licensing, varies according to a myriad of factors, and it is not enough for Apple to
say that Samsung's license offer was unreasonable based on Apple's rationale. Remarkably, even though Apple complains that Samsung's license offer was not FRAND, Apple has not shown that, as a member to ETSI, it ever availed itself of the process and procedures of the ETSI under Clause 4.3 of the ETSI Guide on IPRs, which provides for mediation by ETSI Members or the Secretariat. (RX-0713 at Clause 4.3.) It is not enough for Apple to complain that Samsung's license offer of 2.4 percent of the selling prices of Apple's devices, is unreasonable, since there is insufficient evidence of customs and practices of industry participants showing that Samsung's demand is invidious with respect to Apple. Furthermore, negotiations often involve a process of offer and counteroffer before the parties arrive at an agreed price, but Apple's evidence does not demonstrate that Apple put forth a sincere, bona fide effort to bargain with Samsung. Rather, it appears that Apple and Samsung both decided to negotiate licensing terms between each other through the tortuous, and expensive, process of litigation.
Was Samsung Guilty of FRAND Misconduct, Making the Patents Unenforceable? - ITC: No
Apple also claimed that Samsung was guilty of misconduct before ETSI and inequitable conduct, making the patents unenforceable, but the judge says there's not law that says that, that a violation of some ETSI rule makes a patent unenforceable, and even if there was, Samsung didn't do anything wrong: The Administrative Law Judge concludes that Apple has failed to demonstrate that either the evidence or the law supports Apple's contention that the '644 patent is unenforceable by reason of alleged acts of misconduct on the part of any of the named inventors or Samsung in its dealings with the 3GPP and ETSI.
With respect to the evidence, Samsung has shown a legitimate reason for why it advanced its proposals in opposition to Motorola's. The fact that members of consensus bodies that set industry standards advocate positions they favor and denigrate positions advocated by others is a dialectical process which is conducive to arriving at outcomes deemed desirable to the goals of the organization. The fact that Samsung, or its participating members, found fault with Motorola's proposals and favor with their own is not enough to demonstrate misconduct. Samsung has shown reasons for the stand it took and the Administrative Law Judge finds no reason to conclude that there were any improprieties in what Samsung did vis-à-vis its participation in the ETSI.
Nor has Apple provided a legal basis for rendering the '644 patent unenforceable even if it were to be concluded that Samsung's activities with respect to the 3GPP and ETSI contravened in some respect a policy thereof. ETSI is an organization that has adopted various policies, among which is the following:
14 Violation of Policy
Any violation of the POLICY by a MEMBER shall be deemed to be a breach, by that MEMBER, of its obligations to ETSI. The ETSI General Assembly shall have the authority to decide the action to be taken, if any, against the MEMBER in breach, in accordance with the ETSI statutes.
(RX-710 at APLNDC-WH-A0000012546.) There is no evidence that Apple has exhausted, or even pursued any course of action or remedy available to it under this provision, or any other, offered by ETSI or otherwise shown that pursuit of the forms of relief or remedy available from ETSI would be inadequate. There is no law cited by Apple that authorizes an Administrative Law Judge to superintend the affairs of ETSI and make findings that may not be in accordance with its objectives and governing provisions….
The Administrative Law Judge finds that there is not clear and convincing evidence that inequitable conduct was committed during the prosecution of the '644 patent before the USPTO.
Is There Patent Exhaustion? - ITC: No
Apple also claimed patent exhaustion, saying that by reason of an Intel-Samsung licensing agreement, Apple got to use the patents without paying. That definitely didn't fly: The Administrative Law Judge concludes that the evidence is not sufficient to support
Apple's patent exhaustion defense….And
even though Apple claims that {[redacted]}, according to one of the cases Apple relies on, Apple v. Motorola,
No. 1:11-cv-03540 (N .D. Ill.), Motorola had requested a 2.25 percent royalty rate of sales, which
is closely comparable. (Id. at 17.) While this may be an apples and oranges comparison, the fact
is that Apple has offered only attorney argument, rather than substantive evidence, that Samsung
breached its FRAND obligations. From all appearances, {[redacted]}, even though there was a
mechanism in place under ETSI Guidelines for resolving disputes. Dr. Walker did not testify, nor
could he, as to the bona fides of Samsung's licensing offer to Apple; nor did anyone else. Judge
Posner, in the Motorola case found the expert evidence offered by the parties with respect to
damages inadequate, but similarly, Apple's evidence of what constitutes a FRAND license under
the facts of this Investigation is inadequate.
For reasons previously discussed, the
Administrative Law Judge finds that there is insufficient evidence to warrant a finding that
Samsung breached its obligations with respect to its membership, and participation in ETSI.
For the foregoing reasons, the Administrative Law Judge concludes that Apple has not
sustained its burden of proof that Samsung's sales to Qualcomm serve to exhaust Samsung's
patent rights with respect to the '348 and the '644 patents.
Apple, after its victory over Samsung in District Court, added that news, with some argument that it settled the matter, to the ITC case, to kudos from FOSSPatents at the time [http://www.fosspatents.com/2012/09/apple-leverages-jury-verdict-on-patent.html]. But the ITC didn't see that way:
Apple argues that under the four-part test for issue preclusion, the jury's verdict in the
District Court case "are determinative of the issues of (1) Intel's authority under the Samsung
Intel License to sell Apple the baseband processors used in the accused products, and (2) whether
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the sale of Intel baseband processors to Apple takes place in the United States." (Id. at 6-7.)
Apple asserts that those two issues in the District Court case are identical to the issues presented
in this Investigation. (Id. at 7.) Apple says the infringement allegations in the District Court
case concerned the same processors as those accused in this Investigation; the jury found that the
same license at issue in this Investigation authorized Intel to sell those processors to Apple; and
the jury found that the identical sales of those processors that are at issue in this Investigation
were made to Apple in the United States. (Id.)…
The Administrative Law Judge concludes that the jury's verdict in Apple Inc. v. Samsung
Electronics Co. Ltd. et al., No. 5:11-cv-01846 (N.D. Cal.) that "Apple has proven by a preponderance of the evidence that Samsung is barred by patent exhaustion from enforcing... [patents '516 and '941] against Apple[,]" is not issue preclusive with respect to the '348 or '644 patents in this Investigation. (Notice, Ex. A, No. 33 at 20.)
The Federal Circuit has held that issue preclusion, or collateral estoppel, "is appropriate
only if: (1) the issue is identical to one decided in the first action; (2) the issue was actually
litigated in the first action; (3) resolution of the issue was essential to a final judgment in the first
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action; and (4) plaintiff had a full and fair opportunity to litigate the issue in the first action." In
re Freeman, 30 F.3d 1459, 1465 (Fed. Cir. 1994.)
According to the jury's verdict, they found that there was no infringement by Apple of
Samsung's asserted patents. (Notice, Ex. A, No. 24 at 17.) However, the jury also found that
Samsung's patents were exhausted by virtue of the Samsung-Intel agreement. (Id. No. 33 at 20.)
If the accused Apple products do not infringe Samsung's '516 and '941 patents, as alleged by
Samsung in the district court case, by virtue of those products' incorporation of the Intel's PMB
9801 baseband processor, then the sale of those chips by Intel would not exhaust Samsung's
patents, because the PMB 9801 logically could not have practiced all of the limitations of those
patents. The affirmative defense of exhaustion requires proof of an authorized, territorial sale of
articles embodying the patents at issue. Quanta, 553 U.S. at 628. Therefore the jury's verdict
with respect to the issue of patent exhaustion cannot be considered an essential fact
determination by the jury, since it is inconsistent with the jury's verdict that Apple's products
containing the PMB 9801 did not infringe Samsung's patents.
Although Apple maintains that these were not inconsistent verdicts, but rather, alternative
verdicts, this does not settle the question of whether the jury's verdict with respect to the issue of
exhaustion satisfies the Federal Circuit's requirement that, for purposes of issue preclusion, the
preclusive finding must be essential for a final judgment….
Thus, the Administrative Law Judge concludes that the jury's verdict with respect to
patent exhaustion is not preclusive of the issue of patent exhaustion that has been asserted by
Apple in this case. The Administrative Law Judge further concludes that Apple's Notice is
procedurally improper, for the reasons set forth by Samsung in its opposition.
As you can see, it was a wipeout across the board on FRAND. There are numerous redactions, as you'll see in the complete text version, but there's enough to see that when Apple yesterday was quoted in the NY Times article about software patents being destructive weapons, saying it was worried about standards essential patent owners charging too much, the comment flies in the face of this ruling, which I take to mean that Apple plans to charge forward, despite just being told that its arguments are not valid.
By the way, the judge thinks this is about negotiating a lower price. I think it's part of a larger conspiracy to destroy Android with constant litigation and constant complaints to administrative bodies like the FTC. It's proprietary versus open. Android runs on Linux, you know. And now that Android is winning in the smartphone market, Apple and Microsoft (and Oracle, who just joined Microsoft's other running dogs at the hilariously named FairSearch) feel about it just like SCO, whose litigiousness it now imitates, but on a much grander scale.
[ Update: There was a meeting under the auspices of the ITU in Geneva, and David Meyer at ZDNet reports that while Apple continues to whine, the representative from Motorola said that the real problem is Apple is new to FRAND, new to standards in connection with smartphone patents, and it simply misunderstands how FRAND policies have worked for decades now. That, I am afraid, is unlikely but conceivable. What is more likely is that they are presenting how they *want* it to be, by pretending it already is that way:
Google's Motorola subsidiary has tried to use standards-essential patents against Microsoft and Apple in injunction bids, and has argued that a reasonable rate for licensing those patents would be 2.25 percent of the sales price of the full product. Microsoft, Apple and Cisco have banded together in disagreement.
"The average selling price [ASP] approach wrongly permits the patent holder to collect value unassociated with its contribution to the standard," Apple chief intellectual property counsel BJ Watrous argued in a morning session. "Using the ASP of the end user product as the royalty base [is] discriminating against companies like Apple who sell high-value products."
During the same session — the morning talks were open, while those during the afternoon were held under the Chatham House Rule — Motorola senior licensing counsel Ray Warren said Apple was misunderstanding the way FRAND works in the telecoms industry, as it is relatively new to that game.
"For 20 years the [FRAND] licensing commitments made by innovators in the communications industry have been sufficient," Warren said. "Past experience would indicate that [FRAND] has been effective… but that doesn't mean there isn't room for improvement to improve the present situation." So price is the issue with Apple, but if you claim the other side is violating something, you get to wax indignant. If you just presented it that you'd like a change in the way FRAND works because you are selling "high-value products", it doesn't inspire action in quite the same way as if you portray others as the bad guy. - End Update.]
Here are all the PDFs, and note that some of it at the end is exhibits. I see references to cases in Europe, for example, if that is something you are curious about:
Part
1
Part
2
Part
3
Part
4
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5
Part
6
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8
Part
9
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The ITC Ruling, FRAND Section, as Text:
Here's the section on FRAND, taken from Part 8 and a little of Part 9:
PUBLIC VERSION
VI. ENFORCEABILITY
A. Whether the Claims of the '348 and '644 Patents Are Barred under Samsung
Commitments to ETSI
1. Whether FRAND Commitments Preclude Samsung from Seeking an
Exclusion Order.
a) Apple's Contentions
Apple alleges that Samsung's obligations to ETSI to license its declared essential patents,
which include the '348 and '644 patents, on fair, reasonable, and non-discriminatory terms
("FRAND") precludes Samsung from any rights it might have otherwise enjoyed to obtain an
exclusionary remedy and limits Samsung to monetary relief (RBr. at 134.) According to Apple,
courts and regulatory agencies are increasingly vigilant in preventing FRAND patent holders
from abusing their patent rights by seeking exclusionary remedies, and, therefore, Samsung
should not be permitted to engage in such "abuse" here. (Id. at 134-135.)
(1) Whether the ETSI FRAND Policy Is Incompatible with
Exclusionary Remedies
Apple says the ETSI IPR Policy recognized that an "investment in the preparation,
adoption, and application of STANDARDS could be wasted as a result of an ESSENTIAL IPR
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for a STANDARD being unavailable." (Id. at 135 (citing RX-710, Clause 3.1; Tr. (Walker) at
1346-48).) According to Apple, in order to avoid the risk that ESSENTIAL IPR could be
"unavailable," Clause 6.1 dictates that licenses must be available on FRAND terms, and this
requires members who agree to license their IPR to make an "irrevocable" commitment to do so.
(Id. (citing RX-0710, Clause 6.1).)
Apple notes that Dr. Walker, who is knowledgeable about the operations and procedures
of the European Telecommunications Standard Institute, based on his experience as an executive
there, explained that a Clause 6.1 commitment involves a trade-off by the IPR holder, who
benefits from having IPR incorporated as part of a standard, and with that, enjoys the opportunity
to receive FRAND related royalties from all implementers of the standard.
(Id.) That
opportunity can instantly transform the value of IPR (such as in the case of the "precise pattern"
of the '644 patent), thereby providing access to a mass global market, with a potential for high-volume royalties. (Id. (citing Tr. (Walker) at 1349).) What the IPR holder gives up for this
commercial opportunity is the right to do anything but license its IPR, which includes
relinquishing rights it might otherwise have to preclude competitors from using that IPR. (Id.
(citing Tr. (Walker) at 1349-50).) Apple says that, while the ETSI IPR Policy does not expressly
forbid injunctions, it makes clear that such a step is incompatible with making the FRAND
bargain to license to all interested parties. (Id. (citing Tr. (Walker) at 1350).)
Apple argues that this view is not Apple's alone, noting that on June 22, 2012, United .
States Circuit Court Judge Richard Posner, while sitting as a district court judge, rejected a claim
by Motorola, seeking an injunction against Apple, despite Motorola's FRAND commitment, and
in so doing, Judge Posner made this comment:
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To begin with Motorola's injunctive claim, I don't see how, given FRAND, I
would be justified in enjoining Apple from infringing the '898 unless Apple
refuses to pay a royalty that meets the FRAND requirement.
(Id. at 135-136 (citing Apple v. Motorola, Inc., No. 1:11-cv-08450 (N .D. lll. June 22, 2012) at
18).) Apple says that Judge Posner rejected Motorola's argument, which is identical to
Samsung's here, that Motorola was justified in seeking an injunction based on its contention that
Apple had rejected a FRAND offer:
If Apple said no to 2.25 percent, it ran the risk of being ordered by a court to pay
an equal or even higher royalty rate, but that is not the same thing as Motorola's
being excused from no longer having to comply with its FRAND obligations.
Motorola agreed to license its standard-essential patents on FRAND terms as a
quid pro quo for their being declared essential to the standard. It does not claim
to have conditioned agreement on prospective licensees' making counteroffers in
license situations.
(Id. at 136 (citing Apple, No. 1:11-cv-08450 at 20).) Apple further quotes Judge Posner's
conclusion: "A FRAND royalty would provide all the relief to which Motorola would be entitled
if` it proved infringement of the '898 patent, and thus is not entitled to an injunction. (Id. (citing
Apple, No. 1:11-cv-08450 at 21). Apple says the same logic applies here.
Apple says that two weeks before Judge Posner's decision, the Federal Trade
Commission submitted a Statement on the Public Interest in Investigation No. 337-TA-752, in
which the FTC observed that "ITC issuance of an exclusion or cease and desist order" for patents
that have been declared essential to a standard, "has the potential to cause substantial harm to
U.S. competition, consumers and innovation." (Id. (citing ThirdParty United States Federal
Trade Commission's Statement on the Public Interest, Inv. No. 337-TA-752 (June 6, 2012) at 1,
http://www.frc.gov/os202/06/1206ftcgamingconsole.pdf ("Third Party Statement").) Apple notes
that the FTC cautioned that, given the "hold up" power inherent in patents declared essential to a
standard, an "imbalance between the value of patented technology and the rewards for
456
innovation may be especially acute where the exclusion order is based on a patent covering a
small component of a complex multicomponent product." (Id. (citing Third Party Statement at
3).) Apple says the FTC observed that a RAND commitment provides evidence that the SEP
[standard-essential patent] owner planned to monetize its IP through broad licensing on
reasonable terms, rather than through exclusive use." (Id. (citing Third Party Statement at 5).)
Similarly, according to Apple, in March a court in the Netherlands rejected Samsung's
attempt to enjoin Apple with respect to patents for which Samsung had made FRAND
declarations. The court concluded that "seeking injunctions during negotiations on a FRAND
license must be considered to be an abuse, or as the case may be breach of precontractual good
faith." (Id. at 136-137 (citing Samsung Electronics Co./Apple Inc., District Court of the Hague
¶¶ 4.31, Mar. 14, 2012 (attached to CBR. as Ex. 6).) Apple contends that the statements of the
FTC, and the decisions of Judge Posner and the Netherlands court underscore that Samsung's
FRAND commitments are fundamentally inconsistent with an exclusion order for the '644 and
'348 patents, and that by making FRAND commitments, Samsung has disclaimed any right to
seek such a remedy and should not be allowed to renege on that irrevocable commitment.
b) Samsung's Response
Samsung responds that, in order to support its proposition that a FRAND commitment
precludes the ITC from issuing an exclusion order, Apple cites the recent order issued by Judge
Posner, sitting by designation, in Apple, No. 1:11-cv-08540. (CRBr. at 85.) Samsung says that
in that order, after excluding both parties' damages theories, the judge dismissed the case with
prejudice, stating that "[b]y committing to license its [declared essential] patent on FRAND
terms, Motorola. . .implicitly acknowledged that a royalty is adequate compensation." (Id. (citing
Apple, No. 1:11-cv-08450 at *18-19).) Samsung says that the court in that case noted that the
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basic principle that injunctive relief is not automatically available in a district court infringement
action, where damages are otherwise adequate to compensate for infringement. (Id. (citing
Apple, No. 1:11-cv-08450 at *21, 34).) With respect to Motorola's asserted standards patent,
Samsung notes that the court made the comment first quoted above. (Id. at 85-86.) In other
words, argues Samsung, even in a district court setting governed by eBay principles, the judge
recognized that a party that refuses to pay a FRAND royalty is in fact subject to an injunction.
(Id. at 86.)
In contrast, argues Samsung, where the authority of the United States International Trade
Commission to issue exclusion orders is implicated, Judge Posner's opinion has no application.
(Id. (citing Spansion, Inc. v. Int'l Trade Comm 'n, 629 F.3d 1331, 1359 (Fed. Cir. 2010) (holding
that eBay does not apply to remedy determinations in the ITC under Section 337)).) Samsung
says that Section 337, as amended, sets forth the ITC's mission, namely to protect United States
industries from infringing and other unfairly competing imports. (Id. (citing 19 U.S.C. §
1337(a)(1) (stating that unfair acts under Section 337 "shall be dealt with in addition to any other
provision of the law.")).) Samsung says that Section 337 authorized the Commission to grant an
exclusion order when an imported article is shown to infringe a valid and enforceable United
States patent. (Id.) The statute does not contain any special provisions or carve-outs for RAND-encumbered patents, and Samsung says it is not aware of any statute requiring special treatment
for such patents. (Id.) According to Samsung, in the absence of express change by Congress
to the ITC's statutory authority, there is no legitimate basis for the Commission to create a
bright-line rule preventing the Commission from issuing the only relief it can grant, solely
because an asserted patent may be subject to some type of RAND obligation. (Id.) Samsung
argues that RAND issues have been raised in numerous investigations, but not once has the
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Commission concluded that it lacks the authority to issue an exclusion order solely because an
asserted patent is subject to a RAND obligation. (Id.)
Samsung says that Apple itself admits "the ETSI IPR Policy does not expressly forbid
injunction" and Apple's expert also confirmed that ETSI could not impose such a rule. (Id.
(citing Tr. (Walker) at 1450-51).) As for the FTC's Statement on the Public Interest in
Investigation No. 337-TA-752, Samsung says the FTC did not say that an exclusion order is
inappropriate in all circumstances; rather, the FTC urged the ITC to "consider the impact of
patent hold-up on competitive conditions and United States consumers‚" when issuing exclusion
orders based on standard-essential patents. (Id. at 86-87 (citing Third Party United States
Federal Trade Commission's Statement on the Public Interest, Inv. No. 337-TA-752 (June 6,
2012) at 5).) Samsung argues that in cases such as this, where a respondent has not come
forward with evidence that a FRAND offer has been made, an exclusion order is entirely
appropriate, just as Judge Posner's recent decision acknowledges. (Id. (citing Apple, Inc. v. Motorola, Inc., No. 1:11-cv-08540, *18 (N.D. Ill. June 22, 2012).)
Staff also disagrees with Apple's contention that Samsung's FRAND declarations
precludes the Commission from issuing an exclusion order in this Investigation, noting that
Apple has failed to cite any precedent holding that the Commission lacks jurisdiction to conduct
" a Section 337 investigation as to a patent for which FRAND obligations may exist. (SBr. at 67.)
Staff says that even though FRAND issues have been raised in numerous investigations, not one
of them has resulted in a finding that the Commission lacks jurisdiction to conduct an
investigation or to award relief merely because the asserted patent is allegedly subject to FRAND
obligations. (Id.) Rather, in investigations where an asserted patent is subject to FRAND
obligations, the focus has typically been on whether the patentee engaged in good-faith efforts to
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license the patent on FRAND terms. (Id. (citing Certain Dynamic Random Access Memories,
Components Thereof and Products Containing Same, Inv. No. 337-TA-242, in which there was
a determination that the complainant was estopped from asserting the patent-in-suit and was not
entitled to an exclusion order, but only because the complainant had been found not to have
negotiated in good faith a renewal of a cross-license agreement with the respondent).) Staff says the contractual obligations of the complainant in that case required a good-faith effort to license
the asserted patent before the complainant could obtain such relief at the Commission. (Id.)
Staff proposes that, if Apple had presented appropriate evidence, Apple might have been
able to show the Samsung is equitably estopped, for example, from asserting its patent rights
against Apple; however, the mere fact that Samsung may have FRAND obligations does not, by
itself bar Section 337 remedies. (Id.)
Apple responds that Samsung has disclaimed its right to an exclusionary remedy through
its FRAND commitments. (RRBr. at 88.) Apple contends that Samsung never rebutted Dr.
Walker's testimony that a FRAND license is a commitment to license, rather than seek
exclusionary remedies, except in rare circumstances, not present here, such as where a party
ignores a court judgment setting a FRAND royalty. (Id. at 89.) Moreover, argues Apple,
contrary to Samsung's and Staff's contention, Apple has provided authority supporting the
proposition that a FRAND commitment is incompatible with the remedy Samsung seeks, again
citing to Judge Posner's order in the Motorola case discussed above and the ruling of the
Netherlands court, also mentioned above. (Id.)
c) Findings and Conclusion of the Administrative Law Judge
The Administrative Law Judge concludes that ETSI and its FRAND provisions do not
preclude the imposition of Section 337 remedies in investigations in which the Commission
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determines that the authorizing statute is violated by reason of the importation into the United
States of articles that infringe a valid and enforceable United States patent. Section 337
investigations are different than private patent suites in district courts, where damages or other
forms of personal relief are sought. Section 337 investigations have a wider scope than the
private interests of the litigants, as they include the interest of the public as well. In Section 337
investigations, the United States International Trade Commission can exclude infringing articles
from entry into the United States by offending parties and can issue cease and desist orders, but A
_ the statute does not authorize the Commission to provide compensatory relief to the complaining
party. In this respect, the subject of Judge Posner's order in the Motorola case is inapposite,
since it essentially concerns an issue of election of remedies, or waiver thereof, which is not the
gravamen of a Section 337 investigation.
Section 337 investigations are time sensitive, because of the irremediable effects that
unfair competition, including entry of patent infringing articles, might have on domestic
industries in the United States, and the policies and procedures established by ETSI are not
necessarily compatible with the mandate of the United States International Trade Commission,
for prompt and preventive action. To be more specific, the ETSI states as follows:
Any violation of the POLICY by a MEMBER shall be deemed to be a breach, by
that MEMBER, of its obligations to ETSI. The ETSI General Assembly shall
have the authority to decide the action to be taken, if any, against a MEMBER in
breach, in accordance with the ETSI statutes.
(RX-0710, Clause l4.) In the ETSI Guide on IPRs, it is stated: "The purpose of the ETSI IPR
Policy is to facilitate the standards making process within ETSI. In complying with the Policy
the Technical Board should not become involved in legal discussion on IPR matters." (RX-0713
at Clause l.l.) Elsewhere it states: "[I]t should be noted that once an IPR (patent) has been
granted, in the absence of an agreement between the parties involved, the national courts of law
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have the sole authority to resolve IPR disputes." (Id. at 4,3.) The Guide also states that " ETSI
MEMBERS should attempt to resolve any dispute related to the application of IPR Policy
bilaterally in a friendly manner[]" and [s]hould this fail, the MEMBERS concerned are invited to
inform the ETSI GA in case a friendly mediation can be offered by other ETSI Members and/or
the ETSI Secretariat." (Id.) This procedure, while accommodative and suited to seeking
harmony between and among the consensus-building ETSI membership, is also a prescription for
a delayed and protracted dispute-resolution process that relies on the good faith and willingness
by the parties to settle their disputes themselves, in an amicable manner, an ideal that usually
fails in patent cases. Section 337 investigations have a wider concern than a desire to achieve
voluntary resolutions in patent disputes where the interests of the patties may not coincide with
the interest of the public at large, and the Commission's mandate should not be subordinated to
the ulterior objectives of the ETSI.
As a practical matter, if the ITC were precluded from performing its mandate as set forth
in the authorizing statute, an infringing party could, by making unrealistic counter-offers to the
patent holder, while claiming that such counter-offers more accurately reflect FRAND than the
offers proposed by the patent holder, hold up or frustrate Section 337 investigations. As is
discussed in the following section, there is disagreement between Samsung and Apple about
what is a fair, reasonable, and non-discriminatory license with respect to Samsung's standards-essential patents. According to ETSI, the national courts of law, not ETSI, resolves patent
disputes, absent the parties' agreement, as stated in Clause 4.3 of ETSI Guide on lPRs; but if that
extends to deciding what is FRAND, any uncooperative party can do an end-around of a Section
337 investigation in cases of standards essential patents.
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2. Whether Samsung Has Not Made a FRAND Offer to Apple; and
Whether Apple Has Refused To Negotiate in Good Faith
Apple says that Samsung's counsel stated in Samsung's opening statement that the
"biggest point on FRAND" is that Samsung "did make an offer and they made a FRAND offer,"
and Apple "refused to engage." (CBr. at 137 (citing Tr. at 42).) Apple says that, according to
Samsung's theory, based on those facts, Samsung is entitled to pursue an exclusionary remedy
against Apple. (Id.) Apple says that for the reasons stated in the prior section this issue need not
be reached, because Samsung has disclaimed its right to seek an exclusionary order; but in any
event, the record does not support Samsung in this regard.
Apple says that no witness took the stand to defend Samsung's license demands as being
on FRAND terms. (Id.) Apple argues that Samsung previously identified trial witnesses on these
issues, but when the actual hearing arrived, Samsung did not call the relevant witnesses: -
David Teece, a professor who was identified by Samsung as an "expert on
the history, nature and practice of FRAND licensing" and was also
"expected to testify on ...the appropriateness of certain proposed FRAND
rates[.]"
- Eric Stasik, a licensing consultant was identified by Samsung as an
"expert on the history, nature and practice of FRAND licensing" and was
also "expected to testify on. . .the appropriateness of certain proposed
FRAND rates[.]"
(Id. (citing Samsung's pre-hearing statement at 3).) Apple argues that Samsung could have
called a witness from Samsung to defend its licensing demand but Samsung did not do that
either. (Id.)
Apple argues that, fundamentally, Samsung is wrong on the facts because, first, Apple
has not refused to negotiate with Samsung, because as the co-pending 796 investigation
confirms, the issues separating Apple and Samsung include Apple's claim that Samsung is
copying Apple's products, and some of the negotiations between the parties, some of which
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have been publicly reported, Apple has always been willing to pay Samsung a FRAND royalty
for any valid, infringed, and enforceable patent that Samsung has declared essential to the UMTS
standard. (Id. at 137-138.) Apple says that as recently as April 30, 2012, Apple made a
licensing proposal to Samsung under which each party would take a license to the other's
declared-essential patents using the same methodology to derive a FRAND royalty (based on
using each other party's proportion of patents declared essential to UMTS to determine a royalty
rate that would be applied to the price of the baseband processor). (Id. at 138 (citing RX-1695 C).)
Second, Apple says that Samsung has demanded a royalty of 2.4 percent of the full price
of each Apple device, which is not remotely close to FRAND, as Apple's April 30, 2012 letter
makes clear. (Id. (citing CX-l589C; JX-0010C (Chung Dep.) at 57-58).) According to Apple,
Samsung's demand of a royalty of 2.4 percent on the full price of each Apple UMTS-compliant
product is divorced from the requirements of the ETSI IPR Policy and at odds with Samsung's
other licenses for patents subject to FRAND commitments. In short, says Apple, it is unfair,
unreasonable, and discriminatory. (Id.)
Apple says that Samsung is seeking payment for the value in the iPhone and iPad,
including features such as the design, the screen, the camera, and the operating system, that is
wholly unrelated to any contribution Samsung made to the UMTS standard. (Id.) Apple claims
that Samsung's demand is not only unfair and unreasonable but it also discriminates against
Apple for developing sophisticated products with higher prices than more basic cellular phones.
(Id.) Apple says that Samsung can offer no justification for attempting to extract a tax on
Apple's innovation that goes well above and beyond basic cell phone functionality supported by
UMTS, and more specifically, above and beyond any conceivable value that Samsung may have
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contributed to that standard. (Id.) By seeking to charge royalties on the full price of iPhones and
iPads, Samsung is also seeking a double recovery on the Samsung components within those
devices, for which Apple already pays Samsung billions of dollars each year. (Id.)
Apple says the consequences of Samsung's non-FRAND demand are stark, because the
Apple iPhone sells for between $650 and $850. (Id. at 138-139 (citing Tr. (Blevins) at 965).)
Samsung's 2.4 percent demand thus seeks a payment of between $15.60 and $20.40 per iPhone,
(Id. at 139.) By contrast, Apple purchases the baseband processor that allows the iPhone to
communicate with the cellular network, and which contains the hardware (defined by VHDL
code) that Samsung alleges infringes the '644 and '348 patents, { [redacted]
}. (Id. (citing Tr. (Blevins) at 960-961,
965-966, 969-971; see also RX-1236C, RX-l237C).) Therefore, argues Apple, Samsung is
demanding as much, or more, for a license as Apple pays for the hardware that Samsung accuses
of infringement, which means that Samsung has demanded a royalty of over 100 percent of the
cost of the baseband processor. (Id.) This would be grossly excessive, even if the entire
baseband processor contained Samsung technology; however, argues Apple, Samsung's
infringement allegations are aimed at tiny portions of the circuitry in the baseband processors,
and dozens of other companies hold thousands of other declared-essential patents for the UMTS
standard. (Id.)
Apple says that Samsung's demand is excessive by another measure as well, noting that
{[redacted] } (CX-3 80C at 1), and if Apple had paid
Samsung $18 per iPhone, Samsung would have received about $1.3 billion from Apple for the
year, not including what Apple would have had to pay for sales of UMTS-compliant iPads. (Id.)
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Apple claims that Samsung has not even tried to show that its patents merit such immense value.
(Id.) Nor does Samsung's 2.4 percent demand find any support whatsoever in Samsung's other
licenses and past licensing practices. Apple says that Samsung's top licensing executive, Dr.
Seuing-Ho Ahn, was unable to offer any support for the figure, as shown here in testimony he
provided:
Q. Do you know any reason or basis to support that number?
A. Personally, I don't-there is nothing I know.
(Id. (citing JX-0006C (Ahn) at 23 -24, 117-118).) That is because Samsung has never demanded
a 2.4 percent royalty from any company but Apple. (Id. (citing J X-0023C at 61 (Lee); JX-0010C
at 106 (Chung)).) In fact, argues Apple, Samsung had never even previously set a FRAND
royalty rate to charge for its portfolio. (Id. (citing JX-0023C at 61 (Lee)).) The only time that
Samsung has put a figure on its UMTS portfolio during license negotiations was with { [redacted]}
in 2005, when it valued it at {[redacted] } than it has demanded from
Apple. (Id. at 139-140 (citing RX-0190C at 19; JX-0016C (SW Kim) at 63-64, 68-69, 75-76, 92,
94, 96-99,104-106,109,11],113-114,116-117,120-121,126-127,129-131,133-134,138-139,
142, 144, 149-150).) Apple says that no company has ever paid { [redacted]} for a
license to its UMTS portfolio. (Id. at 140 (citing JX-0010C at 56 (Chung); JX-0006C at 83
(Alm)).) Instead, Samsung {[redacted] } licensing covering UMTS patents. (Id.
(citing JX-00006C at 83 (Ahn)).) On these facts, argues Apple, Samsung's demand of Apple is
not only unreasonable, but discriminatory, because { [redacted]}. (Id.)
Samsung responds that it is Apple who refuses to comply with the ETSI framework,
which, Samsung says, envisions that parties will negotiate a license to declared essential patents.
466
(CRBr. at 87.) According to Samsung, almost a year ago it offered to license its portfolio of
patents that had been declared essential to the UMTS standard to Apple at a "headline" rate of
2.4 percent for each relevant end product. (Id. (citing CX-1589.0001).) In response, Apple by
letter proposed a "methodology to derive a FRAND royalty rate" for Samsung's patent portfolio.
(Id. (citing RBr. at 137-138).) Samsung claims that Apple's letter did not provide a counteroffer,
but merely critiqued Samsung's offer. (Id. (citing RX-l659C).) Although Apple contends that
Samsung's offer was too high, Samsung argues that Apple submits no evidence to suggest that it
has ever made a counterproposal to Samsung's outstanding offer. (Id.)
Samsung says that Apple's contention that Samsung's licensing offer was too high is wrong and the fact that the royalty payments might be significant hardly demonstrates that
Samsung's offer is unreasonable, particularly given the size of Samsung's UMTS patent
portfolios and the valuable contributions reflected therein. (Id. at 88.) As regards Apple's
contention that the royalty sought by Samsung would be higher than the price of a baseband
chip, Samsung says this is irrelevant, because Apple fails to identify a single industry license that
uses the price of a baseband chip as a royalty base. (Id.) Samsung says that licenses in the
telecommunications industry typically use the net sales price of a handset as the royalty base, not
the price of the baseband chip. (Id. (citing RX-0174C at 2; RX-205C at 2; RX-206C at 19-20;
RX-0201C at 5; RX-0194C at 6; CX-0395C at 9).) Samsung says that even if its royalties would
result in payments greater than the price of a baseband chipset, such royalty rates are consistent
with industry practice, and other participants in the industry, including Qualcomm and Ericsson,
require licensees to pay a royalty rate of more than 2.4 percent of the net sales price of handsets
for patents declared essential to ETSI standards. (Id. (citing RX-0174C at 2; RX-205C at 2; RX-
206C at 19-20; RX-0194C at 6).)
467
Samsung says that Apple's reliance on a Fed. R. Evid. 408 document from the
negotiation of a cross-license between {[redacted] } and Samsung is misplaced, and explains by way
of this scenario: That {[redacted] } percent royalty rate for Samsung's WCDMA-
declared-essential portfolio and Samsung pays { [redacted]} percent royalty rate for
{[redacted] } WCDMA-declared-essential portfolio. (Id. (citing RX-0190C at S-794-ITC- A
005280737).) Samsung says that applying the rates used in this scenario to each party's
projected sales of handsets, the parties calculated that Samsung would owe {[redacted]
}, resulting in a net payment of {[redacted]
}. (Id.) However, the parties ultimately agreed to a net
payment of {[redacted] } greater than what was indicated by the initial calculations.
(Id. (citing RX-0l89C at S-794-ITC-005280293).) At best, argues Samsung, the {[redacted] } rate
is not reflective of the actual agreement reached by the parties, and if anything, the rate supports
the reasonableness of Samsung's offer. (Id.) If the royalty rate contemplated in the scenario is
proportionally increased to match the actual {[redacted] } net payment, the resulting royalty rate
is over { [redacted]}, which is comparable to the rate offered by Samsung to Apple. (Id.)
Samsung counters that Apple's contention that Samsung's proposed rate is out of line
with other licenses to which Samsung is a party, is also wrong. (Id. (citing RBr. at 139-140).)
Samsung argues that the fact that it has not previously licensed its portfolio of UMTS patents for
a royalty rate of 2.4 percent demonstrates only that Apple's litigation-driven request for such a
limited license, and Apple's refusal to negotiate terms and conditions are at odds with the typical
practice in the industry, and at Samsung, of entering into cross-licenses of entire declared-essential patent portfolios, often in exchange for a balancing, or net, payment from one party to
the other. (Id. (citing RX-0189C; RX-0l9lC; RX-0193C; RX-0178C; RX-0194C; RX-0195C;
468
RX-0196C; RX-0197C; RX-0198C; RX-0l99C; RX-0200C; RX-0202C; RX-0203C; RX-0204C; RX-0205C; RX-0206C; RX-0207C; RX-0208C; RX-0209C; RX-042lC; RX-0423C).)
Samsung says that the fact that {[redacted] } in
regards to some of these licenses does not reflect adversely on the value of Samsung's UMTS
portfolio, but instead, suggests that Samsung's sales volume and corresponding exposure might
be higher than that of competitors with much lower sales. (Id.)
Apple responds that Samsung's 2.4 percent demand of Apple is not FRAND, nor
remotely close. (RRBr. at 90.) Apple repeats that Samsung asks Apple to pay a price that
{[redacted] }, which would result in per-unit royalties of greater than $12 a unit, which is greater than the price of the baseband
processors that Samsung claims are infringing. (Id.) Apple argues that, having failed to put on
any trial evidence, and without citation to any proof, Samsung claims that its proposed royalty
rate and base are in line with the royalty rates of other companies for their declared-essential
patents. (Id.) Apple says that Samsung's position is based only on attorney argument and is
insufficient to meet Samsung's challenges of proving it made a FRAND offer. Insofar as
Samsung suggests that Apple has refused to negotiate, Apple says that this is belied by the
course of communications between the parties, including Apple's April 30, 2012 offer to
Samsung that included a proposal for the parties to cross-license each other's UMTS portfolios
on truly FRAND terms. (Id. (citing RX-l659C).)
The Administrative Law Judge concludes that the evidence does not support Apple's
allegation that Samsung failed to offer Apple licenses to Samsung's declared-essential patents on
FRAND terms. Patents have the attributes of personal property. 35 U.S.C. § 261. Their value,
in terms of licensing, varies according to a myriad of factors, and it is not enough for Apple to
469
say that Samsung's license offer was unreasonable based on Apple's rationale. Remarkably,
even though Apple complains that Samsung's license offer was not FRAND, Apple has not
shown that, as a member to ETSI, it ever availed itself of the process and procedures of the ETSI
under Clause 4.3 of the ETSI Guide on IPRs, which provides for mediation by ETSI Members or
the Secretariat. (RX-0713 at Clause 4.3.) It is not enough for Apple to complain that Samsung's
license offer of 2.4 percent of the selling prices of Apple's devices, is unreasonable, since there
is insufficient evidence of customs and practices of industry participants showing that Samsung's
demand is invidious with respect to Apple. Furthermore, negotiations often involve a process of
offer and counteroffer before the parties arrive at an agreed price, but Apple's evidence does not
demonstrate that Apple put forth a sincere, bona fide effort to bargain with Samsung. Rather, it
appears that Apple and Samsung both decided to negotiate licensing terms between each other
through the tortuous, and expensive, process of litigation. More than what has been cited by
Apple is necessary in order to establish that Samsung violated its obligations under Clause 6.1 of
Annex 6: ETSI Intellectual Property Rights Policy. More than that, Apple needs to establish a
legal basis for foreclosing enforcement under Section 337 in this Investigation, which Apple has
not done.
B. '644 Patent Enforceability
1. Alleged Standards Setting Misconduct (3GPP)
a) Apple's allegation that Samsung engaged in misconduct in
transactions with 3GPP and ETSI involving the disclosures in the '644
patent
Apple alleges that the '644 patent is unenforceable because Samsung violated the ETSI
IPR Policy84 by hiding Samsung's then-pending '644 patent applications from ETSI and 3GPP
___________
84 This is the European Telecommunications Standards Institute (see RX-723 at APLNDC-WH-A 9397) Intellectual Property Rights Policy (see RX-710 at APLNDC-WH-A 12542).
470
while simultaneously advocating that TS 25.212 § 4.10.4 should be amended to adopt the rate-matchjng pattern of those applications. (RBr. at 127 (citing RX-710 at Clause 4.1).) Apple
contends that Samsung was bound by the duties of disclosure set forth by the ETSI in Section 4,
entitled "Disclosure of lPRs," which reads as follows:
Each MEMBER shall use its reasonable endeavors to timely inform ETSI of
ESSENTIAL IPRs it becomes aware of In particular, a MEMBER submitting a
technical proposal for STANDARD shall, on a bona fide basis, draw attention of
. ETSI to any of that MEMBER's IPR which might be ESSENTIAL if that
proposal is adopted.
(Id. at 127, 62-63 (citing RX-710 at Clause 4.1).) Apple says that the duties set forth in Clause
4.1 apply to Samsung, and Apple maintains that Samsung's actions in connection with the '644
patent, and in particular, Samsung's claims that the patent has priority to three prior Korean
patent applications: KR 10-2004-0099917 ("KR 9l7"), filed December 1, 2004; KR 10-2004-0110552, filed December 22, 2004; and KR 10-2005 0007437 filed January 27, 2005,
demonstrate that Samsung breached those duties. (Id. (citing JXM-3).) Apple further notes, in
that connection, that the United States application (App. No. 11/289, 572) was filed on
November 30, 2005. (Id. (citing JXM-3).)
Apple argues that the ETSI IPR policy contemplates that its members must declare any of
their proprietary IPR that may be essential to a standard that is under consideration before any
such standards are adopted by the ETSI. (Id. (citing Tr. (Walker) at 1362-65 (explaining ETSI
IPR policies)).) Apple alleges that Samsung did not declare any of the aforementioned patent
applications as essential to TS 25.212 until May 16, 2006, almost a year after Samsung
successfully convinced the 3GPP to adopt the claimed '644 rate-matching pattern as TS 25.212 §4.10.4. (Id. (citing RX-722 at APL79-A000O00963 (indicating adoption of Samsung's E-AGCH
471
proposal by RAN 1); RX-854 at 55 (indicating adoption of Samsung's E-AGCH proposal by
RAN 1); RX-133 at 14 (declaring KR 917 as essential)).) According to Apple, what Samsung
did declare was a single application, which was the only application (KR 917), which does not
disclose the claimed '644 rate-matching pattern. (Id.)
Apple says that Mr. Kim, one of the named inventors of the '644 patent, was unabashed
at the hearing about Samsung's strategy vis-a-vis its involvement in the ETSI when he conceded
that his Korean applications covered the very same rate-matching pattern that he had proposed to
RAN 1. (Id. (citing Tr. at 374-376, 378 (Kim)).) Despite that connection and what Apple
contends were his and Samsung's obligation to disclose potentially essential IPR, Mr. Kim
admitted that he withheld the pending Korean patent applications:
Q. And on February 14th, 2005, you're in, I believe it was Scottsdale, Arizona
for the meeting, right?
A. Yes, that's how I recall.
Q. And you heard the call for IPR, right?
A. As I sit here today, I don't quite recall, but I would believe that's how it had
happened.
Q. Well, you do recall that the RAN l meetings always started with a call for
IPR, right?
A. That is correct, based on my ten years of experience.
Q. And what the chairman says is if you have IPR that might be essential to your
proposal, you have to disclose it, right?
A. No, I don't think so.
Q. It says, "own IPR which are or likely to become essential," right?
A. That's how it is written.
Q. Now, 18 days before this on January 27th, you had filed the third of your three
patent applications, right?
A. I believe so.
Q. An application that covered the rate-matching patterns at this meeting, right?
A. I believe so.
Q. And you took no steps in response to the chairman's call for IPR to disclose
your patent applications, right?
A. I did not take any step in response to the call for IPR. . ..
(Id. at 127-128 (citing Tr. at 377-378 (Kim)).) Apple notes that Mr. Kim conceded that he never
disclosed the applications leading to the '644 patent at any time. (Id. (citing Tr. at 380 (Kim)).)
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Apple says that, although Samsung kept the '644 patent secret from 3GPP and ETSI, the named inventors actively lobbied RAN 1 and other member companies to adopt Samsung's
pattern as § 4.10.4, instead of better-performing technology, known as "tail-baiting," that had
been proposed by Motorola. (Id. at 128 (citing RX-718 at APL794-A0000009562-63 (showing
competing E-AGCH proposals at RAN 1 Meeting #40).) Apple says that Samsung's internal and
external communications tell two entirely inconsistent stories, because Mr. Kim's simulation
data from 2004 show that he was aware the Motorola's technology substantially outperformed what Samsung was proposing. (Id. (contrasting RPX-31C at "case4(2)," col. W-AB at lines 154-177 to RPX-31C at "case4(s)," col. Q-V at lines 156-177).) According to Apple, Mr. Kim's
March 2005 internal report states that Motorola's tail-biting proposal produced a gain of 1.2 dB
over standard convolutional codes, which is about six times as much gain as that produced by the
'644 rate-matching pattern, which was 0.2 dB. (Id. (citing RX-878C at 4).) Apple says that Mr.
Kim's report admits that tail-biting was "no problem from the ...complexity point of view";
however, he quickly recognized that adoption of Motorola's tail-biting technology would obviate
the need for his adapted rate-matching pattern. (Id. at 128-129 (citing RX-878C at 4 ("it is
expected that the performance gain from the improved rate matching pattern would be marginal
due to the equal error protection of tail-biting convolutional code, i.e., uniform puncturing (R99
type RM) may be enough.")).) Apple argues that, in order to thwart that outcome, Samsung set
upon a strategy to exploit the conservative nature of 3GPP and ensure that Motorola's
technology was excluded. (Id. at 129 (citing RX-878C at 4 ("tail-biting convolutional code may
be excluded by the conservativeness of 3GPP.")).)
Apple contends that Samsung's representations to the 3GPP were in furtherance of
Samsung's devious strategy, and just before RAN 1 Meeting #40bis, Mr. Kim e-mailed RAN 1
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delegates from Ericsson, Qualcomm, Nokia, and Siemens to discuss Motorola's tail-biting
proposal. (Id. (citing RX-893C).) Apple argues that Mr. Kim deliberately misled other 3GPP
delegates by reporting that the gains from tail-biting were "just about 0.2 dB" and that the gain
did not justify adopting Motorola's proposal, in light of the "big increase in receiver
complexity." (Id. (citing RX-893C).) Based on these representations, Mr. Kim asked these
delegates to endorse Samsung's proposal. (Id. (citing RX-893C; Tr. at 380 (Kim)).) According
to Apple, Mr. Kim never revealed that his own testing was directly contrary to these
representations, and he never revealed that Samsung had filed several patent applications
covering Samsung's proposal. (Id. (citing Tr. at 380 (Kim)).)
Apple says that, in April 2005, at RAN 1 Meeting #40bis, Mr. Kim submitted E-AGCH
proposal Rl-050308, again recommending that Samsung's technology be adopted over
Motorola's. (Id. (citing RX-152).) Contrary to Mr. Kim's own internal reports, Mr. Kim again
argued that tail-biting increased decoder complexity. (Id. (comparing RX-152, at 3, with RX-878C at 4).) Apple reports that Mr. Kim also submitted change request R1-050309, seeking
adoption of the '644 rate-matching pattern as part of TS 25.212 § 4.10.4. (Id. (citing RX-152,
RX-050 at APL794A0000075473, 75).) Apple contends that, based on Mr. Kim's
representations, the delegates to RAN 1 #40bis decided to move forward with Samsung's
technology, at which time they had not been informed by Samsung's participating members that
Samsung had applied for patents that were based on Mr. Kim's proposal, or that Mr. Kim's
internal reports showed that Motorola's technology performed better and that complexity was
"no problem." (Id.)
Apple says that the following month, at RAN 1 Meeting #41, Mr. Kim renewed his formal request to adopt the '644 pattern. (Id. (citing RX-722 at APL794-A0000009663).) At no
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time, argues Apple, did any of the named '644 inventors or anyone else from Samsung inform
the 3GPP participants that they had filed three patent application on the very technology they
were advocating for adoption. (Id. at 129-130).) Apple says that Samsung's technology was
adopted by RAN 1 and then embedded in the standard by the full RAN group in June 2005. (Id.
(citing RX-854 at 55).)
Apple contends that Samsung's strategy of "non-disclosure" was part of a corporate
policy to generate "standards adopted" patents. (Id at 130 (citing JX-23 at 114 (J .W. Lee)
("disclosure of IPR prior to its adopting would be "stupid"); RX-741C at 6 ("[E-AGCH rate
matching] appears to be valuable as a patent if we can find the puncturing position that can
ensure gain of approximately 0.2 dB and can be contained in the specification in the same
way."); JX-9C at 31-35 (Choi Dep.) (Samsung's corporate representative witness testifying that
Samsung {[redacted] }); RX-163C at 23-24
(showing "deliverables" for 1998-2005)).) Apple argues that the named inventors of the '644
patent went so far as to { [redacted]}.
(Id. citing RX-141C at 7; JX-30C at 120 (Van
Lieshout Dep.)).) These efforts, argues Apple, were part of a specific "standards project" that set
quotas for Samsung patents to be "adopted in to the standard." (Id. (citing JX-9C at 31-35 (Choi
Dep.)).) Standards' "adopted patents" were a specific "deliverable" that Samsung expected from
all of its engineers that Samsung allowed to participate in RAN 1, according to Apple. (Id.
(citing JX-9C at 31-35; RX-163C at 23-24).)
Apple argues that Samsung deliberately misled 3GPP on two fronts. First, Samsung
failed to disclose Samsung's patents to ETSI in a timely fashion, thereby depriving other
475
member companies of the opportunity to balance Samsung's IPR against the benefits of adopting
their technology. (Id. (citing Tr. at 1363-65 (Walker) ("If solution one is encumbered by IPR. . .it
is going to cost your company something. If solution 2, which is technically the equivalent is not
encumbered by any IRP, so it will be free to use, then I believe that most people would choose
the second.")).) Second, Samsung made false and misleading statements to the 3GPP regarding
the relative merits of their own technology compared to Motorola's technology. (Id. at 130-131.)
These statements were made in service of Samsung's policy of acquiring a certain number of
standards-essential patents on a yearly basis and in light of Samsung's failure to disclose its
patent applications, and its misleading statements to the 3GPP, the '644 patent should be held
unenforceable, argues Apple. (Id. at 131.)
Samsung responds that the Motorola proposal was discussed at 3GPP, but "tail-biting"
was a brand-new technology that would have required an entire overhaul of all decoders that
were already implemented in UMTS systems. (CRBr. at 74 (citing Tr. (Kim) at 299-300).)
Therefore, according to Samsung, it was not an option for the 3GPP to adopt Motorola's
proposal. (Id. (citing Tr. (Kim) at 299-301).) Eventually, after much discussion, the members of
3GPP adopted Samsung's proposal, recognizing that it was the best solution to the problem they
were facing. (Id. (citing Tr. at 300-301).) The technology in the '644 patent was adopted into
the 3GPP standard and is practiced by all HSUPA-capable products today. (Id. (citing CX-1748).)
Samsung says that Apple has pointed to no evidence that corroborates Apple's accusation
that Samsung misled the 3GPP regarding Motorola's proposal. (ld. (citing Tr. (Kim) at 299-301).) In fact, argues Samsung, Apple itself completely misrepresents a document in an attempt
to make its point. As regards Apple's assertion that "Mr. Kim falsely told these other RAN 1
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delegates that the results from Motorola's tail biting proposal 'show that the gain from the tail
biting code is just about 0.2 dB'--the same gain Mr. Kim contended his rate-matching pattern
produced[,]" (id. at 74-75 (citing RBr. at 84)), Samsung says the actual language of document
shows otherwise and corroborates Mr. Kim's testimony:
Enclosed are Samsung draft contributions on coding for E-AGCH.
In this contribution, we compared performance of the tail biting convolutional code and the convolutional code specified in current TS 25.212. The results show that the gain from the tail-biting code is just about 0.2 dB. In our view, this gain is not enough to justify the impact on implementation especially big increase of the UE decoder complexity.
(Id. at 75 (citing (RX-0893C).) This shows that Mr. Kim admitted that there is gain from the
tail-biting code, but he said that it was not enough to justify the impact, given the necessary
complexity in the decoder. (Id. (citing Tr. (Kim) at 299-3 00).)
Samsung says that Apple seeks the creation of a new patent unenforceability defense
untethered to any recognized legal or equitable doctrine, namely, if a patent owner fails to
disclose an IPR before a potentially related standards contribution has been "frozen," there must
be a declaration that any patent in the family of that IPR is unenforceable regardless of
circumstances. (CRBr. at 77.) But this is not the law, argues Samsung, as Qualcomm v.
Broadcom, 548 F .3d 1008, 1024 (Fed. Cir. 2008), the sole legal authority on which Apple relies,
demonstrates. Although a court sitting in equity has the discretion to declare a patent
unenforceable based on conduct before a standards body, such an order must be predicated on
clear and convincing evidence that the patent owner engaged in intentional conduct that was so
egregious as to fall squarely within a recognized equitable doctrine, such as implied waiver,
equitable estoppel, or unclean hands. (Id. at 78 (citing Broadcom at 1024).) For example,
although Apple contends that in Broadcom "there was no evidence that the inventors had
participated in the standards-setting process," Apple necessarily ignores a critical fact, namely
that Qualcomm concealed its involvement in, and manipulation of, the standard-setting process
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right through trial as part of its "carefully orchestrated scheme" to conceal its patents and thereby
hold the industry hostage. (Id. (citing Broadcom at 548 F.3d at 1009-10).)
Samsung says that Apple failed to provide any evidence of such bad faith conduct on the
part of Samsung; rather, to the contrary, the record reflects that Samsung complied with its ETSI
obligations. (Id.) Samsung says that it openly complied with its ETSI obligations and only
participated in the standard-setting process and voluntarily submitted a general IPR declaration
in 1998, long before the standards proposals or patent applications at issue existed, stating that is
was prepared to offer licenses to all of its essential patents on FRAND terms and conditions.
(Id.) Samsung says that it then declared members of the '348 and '644 patent families, along
with dozens of other patents and pending patent applications, as essential to the UMTS standard
to ETSI in December 2003 and May 2006. (Id. at 78-79 (citing RX-0164C; RX-0133).)
Samsung says it has entered into licensing agreements with numerous industry participants that
include the '348 and '644 patents along with Samsung's entire portfolio of UMTS-declared
essential patents. (Id. at 79 (citing RX-0188; RX-0189C; RX-0191C; RX-0193C; RX-0178C;
RX-0194C; RX-0195C; RX-0195C; RX-0197C; RX-0198C: RX-0199C; RX-200C; RX-0201C;
RX-202C; RX-020cC; RX-204C; RX-205C; RX-206C; RX-0207C; RX-0209C; RX-0421C;
RX-0423C).) Samsung says that before this Investigation was initiated, Samsung offered Apple
a license that would have included these patents and then, nearly a year ago, at Apple's request,
offered Apple a license limited to Samsung's portfolio of UMTS-essential patents, and Samsung
has unsuccessfully attempted to engage Apple in negotiations ever since.
(Id. (citing CX-0390C;
CX-0769.0006; CX-1589C).) Samsung says it thereby fully complied with ETSl's disclosure
obligations and there is no evidence to suggest that Samsung intentionally shielded the related
Korean patent application from disclosure or refused to license its declared-essential UMTS
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patents on FRAND terms and conditions. (Id.) Samsung says that Apple's own expert testified
that he was not accusing Samsung of any intentional conduct. (Id. (citing Tr. at 1418).)
Samsung argues that the testimony of its witnesses, including its inventors, that Apple
cites does not support a finding of implied waiver; nor is it reasonable to infer from this evidence
that Samsung intentionally failed to timely disclose its patents to ETSI, let alone that this is the
single most reasonable inference. (Id. (citing Therasense, Inc. 649 F.3d at 1290 (holding that, to
find a patent unenforceable for inequitable conduct, the accused infringer must prove that "the
specific intent to deceive must be the single most reasonable inference able to be drawn from the
evidence")).) Although Apple faults the inventors for not disclosing their Korean applications at
ETSI technical working group meetings, Apple ignores unequivocal evidence that ETSI
members never disclose IPRs at such meetings in response to a call for IPR; in fact, working
group members like Mr. Kim would have neither the responsibility nor the authority to make
such disclosures. (Id. at 79-80 (citing Tr. (Kim) at 381).) Samsung says that Apple's own
expert, Dr. Walker, until recently the Chairman of the ETSI Board, conceded that in his 25 years
of involvement at ETSI he could not recall a participant at a working group meeting "ever having
made a declaration about IPR in a submission." (Id. (citing Tr. (Walker) at 1414).) Mr. Walker
also confirmed that it has never been the policy of ETSI that participants in working groups
should submit e-mails mentioning the filing of patents in lieu of submitting an IPR declaration.
(Id. (citing Tr. at 248, 378-379 (Kim), 1414-15 (Walker)).) Samsung says that this is not
surprising given that ETSI unequivocally states that technical meeting are not the proper forum
for disclosures and discussion of IPR. (Id. (citing CX-0441.0012).)
Samsung says that the only mechanism that ETSI provides for IPR disclosures is the
"ETSI IPR Information Statement and Licensing Forms" that is attached to Annex 2 of ETSI
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Guide to IPRs. (Id. (citing CX-0902.0022).) These IPR declaration forms are typically signed
by relatively senior executives who can bind the company to the required FRAND licensing
terms. (Id. (citing Tr. at 1410 (Walker)).) Samsung says that in large companies like Samsung,
there are several layers of management between working group members and those with the
authority to sing these forms. (Id. (citing Tr. at 1413-14 (Walker)).) Thus, the evidence
presented at the hearing, including Mr. Walker's own testimony, cannot support an inference that
the inventors of the '348 and '644 patents or Samsung intended to deceive ETSI.
In response to Apple's assertion that "Samsung's strategy of non-disclosure is part of a
corporate policy to obtain 'standards adopted' patents," Samsung says there is no ETSI
regulation against obtaining standard essential patents and, for the reasons previously mentioned
by Samsung, discussed above, Samsung's conduct of developing successful technologies, openly
working with ETSI, disclosing potentially relevant patents, and willingly licensing them on
FRAND terms, is plainly inconsistent with a "strategy of non-disclosure." (Id. at 80-81.)
Samsung says the testimony cited by Apple actually demonstrates that Samsung has established
internal processes to comply with ETSI policies, including patent teams that access whether
patents being prosecuted are essential to an ETSI standard. (Id. at 81 (citing JX-0009C at 65
(Choi Dep.); JX-0023C at 12 (JW Lee Dep.)).) The most reasonable inference from such
evidence is that Samsung, unlike Apple, had processes in place to comply with the policies of
standards setting organizations, and endeavored to comply with them. (Id. (citing J X-0023C at
12 (JW Lee Dep.)).)
Samsung argues that Apple's assertion that Samsung did not timely disclose its patents
rests on a bright-line rule that finds no support in the ETSI Policy. (Id.) Relying on Clause 4.1,
Apple contends that an IPR disclosure is not timely unless the IPR is disclosed before the
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adoption of the proposal to which it applies; however, argues Samsung, Clause 4.1 simply states
this:
Each MEMBER shall use its reasonable endeavors to timely inform ETSI of
ESSENTIAL IPRs it becomes aware of. In particular, a MEMBER submitting a
technical proposal for a STANDARD shall, on a bona fide basis, draw the
attention of the ETSI to any of that MEMBER's IPR which might be
ESSENTIAL if that proposal is adopted.
(Id. (citing CX-0908.002 at § 4.1).) Samsung says that Apple misreads this clause, which merely
requires that a member use "its reasonable endeavors" with respect to IPR it "becomes aware
of," and then goes on to require disclosure, on a "bona fide basis," i.e., in good faith and without
deceit, of IPR that might be essential if a proposal submitted by a member is adopted. (Id.) The
second sentence of the clause unmistakably refers back to the first sentence and cannot be read in
isolation without reference to the required "reasonable endeavors" of IPRs that the member
"becomes aware of." (Id. at 81-82.) Samsung notes that Apple's expert, Dr. Walker, confirmed
the evidence of intentional misconduct is absent here. (Id. at 82 (citing Tr. (Walker) at 1418 ("Q.
But you were not offering an opinion to His Honor that Samsung intentionally delayed, are you
sir? A. No, I had not said--I had not used the word intentionally delayed at all.").)
Samsung says that Apple erroneously asserts that the use of the phrase "if the proposal is
adopted" in Clause 4.1 of the ETSI IPR Policy necessarily requires disclosure before the
proposal has been adopted; however, the clause simply provides the conditions under which IPR
must be disclosed if a proposal is adopted, not the time when it must be disclosed before the
proposal is adopted. (Id.) Samsung argues that Apple failed to introduce any evidence that ETSI
has ever considered whether a proposal is subject to an IPR before adopting it, let alone that it
should have done so here. Samsung says that Dr. Walker admitted that he had virtually no
personal experience with IPR disclosures, and Samsung notes that he did not offer an opinion on
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whether ETSI might have adopted an alternative technology had it known of the Korean patent
applications. (Id. (citing Tr. at 1365, 1399-1401 (Walker)).)
Samsung says that Apple's theory that members must disclose their patents before a
standard is "frozen," because patents disclosed thereafter "only emerge when it is too late for
ETSI to consider them," is fundamentally at odds with the ETSI IPR Policy, which prohibits
members from discussing IPRs at meetings, as well as the practice at ETSI.
(Id. (citing CX-0441.0012 at § 4.1.).) Delegates at technical meetings, like the Samsung inventors, are to
discuss the technical merits of a proposal, not their relative cost. (Id. (citing CX-0908.002 at §3.1 (stating that the goal of ETSI is to promulgate standards that "best meet the technical
objectives of the European telecommunications sector.").) Samsung contends that the ETSI IPR
Policy simply ensures that the relevant IPR will be available through a FRAND commitment.
(Id. at 82-83 (citing CX-0908.003 § 6.1).) According to Samsung, ETSI encourages the filing of
general disclosures, followed by the submission of specific disclosures "as soon as feasible."
(Id. (citing CX-0441.0005 at § 2.1.1.).) Samsung contends that Apple has failed to demonstrate
that the ETSI IPR Policy requires that a specific disclosure must occur before a proposal is
frozen and also has failed to provide any evidence that ETSI members understand and require
IPR to be declared before a potentially relevant standard is finalized. (Id. (citing Broadcom, 548
F.3d at 1016 (noting that the Federal Circuit relied on testimony regarding understanding of SSO
members to define the disclosure duty).)
Samsung says Apple failed to provide any evidence that Samsung's Korean patent
applications were not confidential at the time Samsung made its proposals, and therefore that
they even fell within ETSI's definition of IPR, which expressly excludes such information. (Id.
at 84.) As an initial matter, Samsung says that Apple asserts that "confidential information,"
482
which appears in that definition in lower case letters, includes "only information that a chairman
of a committee has requested and agreed to treat as confidential." (Id. (citing RBr. at 84).)
Samsung protests that because Apple did not disclose this theory in its pre-hearing brief and
discovery responses, and Dr. Walker did not testify about it at the hearing or even in deposition,
it should be deemed waived, and besides, is wrong. (Id.)
Samsung notes that in defining "IPR," ETSI IPR Policy specifically provides that "[f]or
the avoidance of doubt rights relating to get-up, confidential information, trade secrets or the like
are excluded from the definition." (Id. (citing CX-0908.006 ("Definition of 'IPR'")).) Although
ETSI's IPR Policy does separately define "CONFIDENTIAL INFORMATION" using upper-
case letters to denote certain information requested by a committee chairman per Clause 10, this
upper-case definition of the phrase does not appear outside of Clause 10, say Samsung. (Id.)
Had the ETSI IPR Policy intended to incorporate the narrowly-defined phrase,
"CONFIDENTIAL INFORMATION" in the definition of "IPR," it would have used upper-case
letters to denote that fact as all of the other defined terms are capitalized in the IPR Policy;
instead, "confidential information is used in a more generic way (along with "get-up,. . .trade
secrets or the like." ) (Id. at 84-85.) Samsung contends that Apple offered no evidence that the
Korean patent applications had been published or otherwise had lost their confidential status at
the time when Apple claims they should have been "timely" disclosed. (Id. at 85.) Because
Apple has failed to show that Samsung violated any ETSI policy with the specific intent to
deceive ETSI and manipulate the standard-setting process, Apple's affirmative defense of
implied waiver fails.
Staff says that Apple's contentions regarding both the '348 and '644 patents and
Samsung's conduct vis-à-vis the 3GPP and ETSI in regard to those patents does not constitute
483
misconduct that warrants holding the patents unenforceable. (SBr. at 87.) Staff says that the '644
patent claims priority to three Korean applications, two that were filed in December 2004, and
one that was filed in January 2005. Staff notes that in February 2005 Samsung submitted a
proposal to the relevant 3GPP working group regarding rate-matching candidates for absolute
scheduling grants of 5-10 bits in length. (Id.) Then in June 2005, Samsung's rate-matching
proposal was adopted by the 3GPP. (Id. (citing RX-854).) Staff notes that Samsung did not
declare any of these patent applications as essential to the working group involved in the TS
25.212 standard until May 16, 2006, nearly a year after Samsung had successfully convinced the
3GPP to adopt the claimed '644 rate-matching pattern as TS 25.212 § 4.10.4. (Id. at 87-88.)
Staff recognizes that ETSI IPR Policy establishes a duty for ETSI members such as
Samsung to disclose potential "Essential IPR" to ETSI in a timely manner. (Id. at 88 (citing RX-701 Annex 6 §§ 4.1-4.2 (ETSI IPR Policy).) Staff concludes that Apple has not shown a breach
of that duty for at least two reasons. First, a relatively short time passed between adoption of
Samsung's rate-matching proposals by the 3GPP plenary group and Samsung's disclosure of the
Korean patent applications to which the '644 patent claims priority, less than one year later.
Second, the evidence suggests that the technology disclosed in Samsung's '644 patent is not
essential to compliance with the technical standards of TS 25.212 and thus would not qualify as
"Essential IPR." Staff says the evidence demonstrates that the Apple Accused Products, all of
which are CDMA-compliant, do not infringe the asserted claims of the '644 patent.
Accordingly, argues Staff it must be possible to comply with the ETSI technical standard
without making use of Samsung's IPR. Thus, the evidence is insufficient to establish by clear
and convincing evidence that the '644 patent is unenforceable due to Samsung's conduct as an
ETSI or 3GPP member. (Id.)
484
In its reply brief, Apple argues that, although Samsung refers generally to standards
disclosure (citing CBr. at 128-131), Samsung singularly fails to address the specific reasons
Apple demonstrated at trial for why the conduct of Mr. Kim and the other specifically-identified
Samsung RAN 1 delegates renders the '644 patent unenforceable, including their failure to
timely inform fellow RAN l delegates or ETSI that Samsung had applied for three patents
covering every permutation of AG and rate-matching pattern that Samsung had proposed to them
and deliberately misleading other delegates about the superior performance and low complexity
of Motorola's tail-biting technology. (RRBr. at 76.) According to Apple, Samsung failed to
rebut Apple's proof in its opening brief and has waived any responsive arguments under Ground
Rule 10.1.
The Administrative Law Judge concludes that Apple has failed to demonstrate that either
the evidence or the law supports Apple's contention that the '644 patent is unenforceable by
reason of alleged acts of misconduct on the part of any of the named inventors or Samsung in its
dealings with the 3GPP and ETSI. With respect to the evidence, Samsung has shown a
legitimate reason for why it advanced its proposals in opposition to Motorola's. The fact that
members of consensus bodies that set industry standards advocate positions they favor and
denigrate positions advocated by others is a dialectical process which is conducive to arriving at
outcomes deemed desirable to the goals of the organization. The fact that Samsung, or its
participating members, found fault with Motorola's proposals and favor with their own is not
enough to demonstrate misconduct. Samsung has shown reasons for the stand it took and the
Administrative Law Judge finds no reason to conclude that there were any improprieties in what
Samsung did vis-à-vis its participation in the ETSI.
485
Nor has Apple provided a legal basis for rendering the '644 patent unenforceable even if
it were to be concluded that Samsung's activities with respect to the 3GPP and ETSI contravened
in some respect a policy thereof. ETSI is an organization that has adopted various policies,
among which is the following:
14 Violation of Policy
Any violation of the POLICY by a MEMBER shall be deemed to be a breach, by
that MEMBER, of its obligations to ETSI. The ETSI General Assembly shall
have the authority to decide the action to be taken, if any, against the MEMBER
in breach, in accordance with the ETSI statutes.
(RX-710 at APLNDC-WH-A0000012546.) There is no evidence that Apple has exhausted, or
even pursued any course of action or remedy available to it under this provision, or any other,
offered by ETSI or otherwise shown that pursuit of the forms of relief or remedy available from
ETSI would be inadequate. There is no law cited by Apple that authorizes an Administrative
Law Judge to superintend the affairs of ETSI and make findings that may not be in accordance
with its objectives and governing provisions. For example, Apple points to Clause 4.1 which
states that each member shall use its reasonable endeavors to timely inform ETSI of essential
IPRs. What constitutes "timely" is not specified, but it stands to reason that the members have
views on that matter which may differ not only among each other but also, by way of their
consensus, with what an Administrative Law Judge might determine in the context of a Section
337 investigation, not having the benefit of the members' thinking on the matter, as far as
effectuating the policies of ETSI. The ETSI Guide on Intellectual Property (lPRs) (RX-
0713 at APLNDC-WH-OOOO12464), NOTE l, states: "Definitions for 'Timeliness" or "Timely"
cannot be agreed, because such definitions would constitute a ‚'change to the Policy."'" If the
ETSI itself cannot arrive at a definition of "timely," for someone outside that body to do so
would amount to an assumption of non-delegated legislative power. It would be ill-advised to
486
decree what the members might by consensus not agree with. in short, Apple has not carried its
evidentiary or legal burden for establishing that the '644 patent, a valid United States patent,
should be held unenforceable by reason of Samsung's ETSI activities.
2. Alleged Inequitable Conduct
a) Applicable Law
Patent applicants and their attorneys have "a duty of candor and good faith" in dealing
with the PTO, "which includes a duty to disclose . . . information known . . . to be material to
patentability." 37 C.F.R. § l.56(a). A patent may become unenforceable on the grounds of
inequitable conduct if the patentee withheld material information from the PTO with intent to
mislead or deceive the PTO into allowing the claims. LaBounty Mfg., Inc. v. US. Int 'l Trade
Comm'n, 958 F.2d 1066, 1070-1074 (Fed. Cir. 1992) ("LaBounty"). Both materiality and intent
must be proven by clear and convincing evidence. Id. When inequitable conduct occurs in
relation to one or more claims of a patent, the entire patent is unenforceable. Kingsdown Med.
Consultants, Ltd. v. Hollister, Inc., 863 F.2d 867, 877 (Fed. Cir. 1988) (en banc).
"The materiality of information withheld during prosecution may be judged by the
'reasonable examiner' standard." McKesson Information Solutions, Inc. v. Bridge Medical, Inc.,
487 F.3d 897, 913 (Fed. Cir. 2007) ("Materiality embraces any information that a reasonable
examiner would substantially likely consider important in deciding whether to allow an
application to issue as a patent."). However, a patentee need not disclose material information
that is merely cumulative of other information already before the examiner. Baxter Int'l, Inc. v.
McGaw, Inc., 149 F.3d 1321, 1328 (Fed. Cir. 1998); 37 C.F.R. 1.56(b).
"Direct evidence of intent or proof of deliberate scheming is rarely available in instances
of inequitable conduct, but intent may be inferred from the surrounding circumstances."
487
Critikon, Inc. v. Becton Dickinson Vascular Access, Inc., 120 F.3d 1253, 1256 (Fed. Cir. 1997).
However, intent may not be inferred from materiality. Therasense, Inc. v. Becton, Dickinson and
Co., 649 F.3d 1276 (Fed. Cir. 2011) ("Therasense"). Once the materiality of the withheld
information and the patentee's intent to mislead have been established, the administrative law
judge "must weigh them to determine whether the equities warrant a conclusion that inequitable
conduct occurred." Bristol-Myers Squibb C0. v. Rhone-Poulenc Rorer, Inc., 326 F.3d 1226,
1234 (Fed. Cir. 2003) (quoting Molins PLC v. Textron, Inc., 48 F.3d 1172, 1178 (Fed. Cir.
1995)).
inequitable conduct
Apple contends that the '644 patent is unenforceable because of inequitable conduct
committed by Samsung in the course of prosecuting the application for the patent. (Id.) Apple
argues that, at the time that the named inventors of the '644 patent were telling the 3GPP that
they "took" their '644 rate-matching pattern form Siemens's HS-SCCH, they and those involved
with them in the prosecution of the patent application that resulted in the '644 patent,
deliberately kept this fact, as well as the R1-02-0604 and R1-041520 proposals, previously
discussed, from the USPTO. (Id.) These references were unquestionably material for the
reasons already discussed, argues Apple, citing Aventis Pharma S.A. v. Hospira, Inc., No. 2011-1018, 2012 U.S. App. LEXIS 7095 (Fed. Cir. Apr. 9. 2012) at *20 (defining materiality).) Apple
points to Dr. Stark's testimony that none of the art that was before the USPTO was even close to
being as material as Siemens's R1-02-0604 and R1-041520 proposals, and Apple says that his
testimony in this regard was un-rebutted. (Id. (citing Tr. (Stark) at 2257-61).) Apple says that
Figure 24 of Siemens's R1-41520 proposal admittedly disclosed every limitation of claims 1, 9,
and 13, except the specific rate-matching puncturing positions. (Id. (citing RX-927; Tr. (Kim) at
488
339-42, (Min) at 3080-81).) Apple argues that those puncturing positions were obvious from the
teaching of Siemens's Rl1-02-0406. (Id. (citing RX-54; RX-1527C).) Apple says that Mr. Kim
admitted at the hearing that his '644 rate-matching pattern was {[redacted]}. (Id. (citing Tr. (Kim) at 344).) There was no way, argues
Apple, for the USPTO to have considered Mr. Kim's derivation of the '644 pattern from the
prior invention of Siemens other than through disclosure by the named inventors of the '644
patent. (Id.)
Apple says that Mr. Kim admitted he had a duty to disclose prior art like R1-02-0604 and
R1-041520 to the USPTO, yet these prior art references and the facts of derivation of the '644
invention were intentionally withheld. (Id.) The named '644 inventors' own correspondence,
just weeks before they filed their first patent applications respecting the claimed invention,
{ [redacted]}, says Apple. (Id. at l3l-132 (citing CX-1857C at 2 (questioning
patentability); RX-739C).) According to Apple, the named inventors and Samsung's "patent
team" were motivated to withhold these important references because of Samsung's
{[redacted]}. (Id.)
In order to achieve Samsung's {[redacted] }, the named '644 inventors
executed a plan that was calculated to ensure that the pattern they derived from Siemens was
both patented and adopted by 3GPP. (Id.) According to Apple, in order to get their Siemens-
488
derived pattern adopted as the standard, the named inventors misled the 3GPP both by
withholding the existence of their patent applications in the face of a known duty to disclose
them to ETSI and by actively assuring the other RAN 1 delegates that the rate-matching pattern
that they were proposing was old technology taken from Siemens, and by implication, was not
patentable. (Id. (citing Tr. (Kim) at 380 (admitting failure to disclose); RX-125 at 1
(representing to RAN 1 that "we took the similar concept as used for the HS-SCCH"); RX-893C
("{[redacted]}").) Moreover, according to Apple, the named inventors of the '644
patent lobbied against adoption of Motorola's better-performing "tail-biting" technology by
misstating both the efficacy of Motorola's technology and its complexity. (Id.)
Apple claims that Samsung told an entirely different story to the USPTO and rather than
acknowledge that they had taken the invention from the work of Siemens, as they had admitted
to the 3GPP, the named inventors and Samsung studiously withheld all of Siemens's rate-
matching prior art from the USPTO, art they admittedly not only possessed, but had used to
derive their E-AGCH pattern. (Id. at 132-133.) Apple says that named inventor Kim testified
that he {[redacted]}. (Id. at 133 (citing JX-18 (Kim Dep.) at 67-68; JX-11C (Gha Dep.) at 61-62).) Apple says that Mr. Gha testified that one purpose of the
{[redacted]
}. (Id. (citing JX-
11C at 93-94).) Apple argues that, because of Mr. Kim's extensive use of Siemens's R1-041520
and R1-02-0604 to derive his '644 rate-matching pattern, these prior art references should have
490
been the first documents that Mr. Kim {[redacted] } Mr. Gha; however, it is clear that Mr. Kim
did not submit either one. (Id.) To the contrary, argues Apple, Mr. Gha testified that he had
never seen Siemens's R1-02-0604 before being confronted with it at his deposition, and neither
R1-02-0604 nor R1-041520 were ever revealed to the USPTO. (ld. (citing JXM-3 cover; Tr.
(Kim) at 371-372).)
Apple says that, uncertain of the patentability of their work in light of Siemens's
invention, Mr. Kim and his co-inventors should have made sure that R1-02-0604 and R1-041520
were presented to every patent office that considered their claims, but, instead, what the named
inventors and Samsung did was make sure that no patent office ever found out about the very
prior art that they had used to derive their claims, out of fear that disclosure of this art would ruin
their chances of obtaining a "standards patent." (Id. at 133-134.) Faced with competing
technology that {[redacted]
}, Mr. Kim, his co-inventors, and Samsung should have presented all of the facts (including
that they had applied for patents on their rate-matching proposal) to RAN 1 and thereby let the
best technology prevail. (Id. at 134.) Instead, what the named inventors and Samsung did was
mislead members of RAN 1 about both the performance and complexity of Motorola's proposal,
and fail to disclose their Korean patent application, lest disclosure of these applications hamper
their attempt to standardize their patent.
Samsung points out that Apple's burden to prove inequitable conduct is particularly high,
citing Therasense. Samsung says that Apple must show that, but for the failure to disclose a
particular reference, the patent would not have issued, and Apple's argument and its cited evidence do not come close to meeting this high burden. (Id.) Moreover, argues Samsung,
Apple has pointed to no evidence of intent to deceive, but instead, relies on fabricated stories
491
which are not supported by the evidence. (Id. (citing RBr. at 131-134).) To start with, Samsung
says that at the hearing Dr. Stark only opined regarding materiality for R1-02-0604, which is
Siemens's HS-SCCH proposal, and R1-041520, which is Siemens's E-DCH proposal. (Id.
(citing Tr. (Stark) at 2257, 2261). Because these references are missing many of the claimed
limitations, including the claimed rate-matching pattern, they cannot possibly rise to the level of
"but for" materiality that is required for inequitable conduct. (Id.) Also, Mr. Young-Bum Kim
testified that the HS-SCCH proposal did not even work as it applied to the E-AGCH. (Id. at 75-76 (citing Tr. (Kim) at 288).) Therefore, it cannot possibly be material to claims related to the E-AGCH. (Id. (citing Tr. (Min) at 3042-43).) Samsung says that Apple has pointed to no evidence
but relies solely on attorney argument in its attempt to show that the claims would not have
issued but for these references being before the patent office. (Id. at 76.)
Samsung says that Apple's accusation that the cited references were "intentionally"
withheld is conclusory and that Apple has proffered as its support a discussion between the
inventors relating to {[redacted] } that occurred before they had begun to work on the '644
invention. (Id. (citing RBr. at 131-134; RX-793C).) Samsung notes that the inventors did not
invent anything related to the HS-SCCH, but instead, spent {[redacted]}. (Id. (citing Tr. (Kim) at 296-298; RX-0153; RPX-031C).)
As a result, says Samsung, RX-739C fails to support Apple's assertion that the inventors
believed the HS-SCCH invention was material to the '644 patent. By the time the invention was
complete and the claimed rate-matching pattern was developed, the inventors knew that the HS-SCCH proposal was not related to the '644 invention. (Id. (citing Tr. (Kim) at 296-98).)
Samsung argues that, despite Apple's assertion, there is actually no evidence that the
inventors did not submit any of the prior art to their patent attorneys; and although Apple claims
492
that it is clear that Mr. Kim did not submit these references, Apple points to no evidence that
shows that he did not, only pointing to testimony of Mr. Gha, who was {[redacted]}. (Id. at 76-77 (citing JX-11C (Gha Dep.) at
61-62).) Samsung argues that it is possible that, given that the alleged inequitable-conduct
references do not disclose any of the claimed limitations, it was determined that more material
references had already been disclosed. According to Samsung, there is no evidence to support
Apple's allegations, and the evidence fails to show that the inventors and Samsung had the
requisite intent to deceive the patent office. (Id. at 77.)
Staff` says that, in its view, the evidence demonstrates that the references that Apple
identifies were not material to the prosecution of the '644 patent, because a reference is not
material unless the patent would not have issued "but for" the non-disclosure. (SBr. at 89 (citing
Therasense, 649 F.3d at 1291-92).) Staff asserts that for the reasons provided by Staff in regard
to Apple's obviousness contentions, Staff believes that the R1-02-0604 and R1-041520
references do not meet that standard. Staff argues that these references are concerned with
downlink communication from the base station, not with decoding information at the mobile
device, and they fail to disclose the specific rate-matching pattern found in the asserted claims of
the '644 patent. (Id. at 89-90.) Given the limited relevance of these references, Staff contends
that Apple has not shown that the '644 patent likely would not have issued if R1-02-0604 and
R1-041520 had been provided to the patent examiner. (Id. at 90.)
Staff also says that even if these prior-art references were shown to be material, Apple's
inequitable conduct argument would still fail because Apple has not even alleged facts indicating
that there was an intent to deceive the USPTO. (Id. (citing Cancer Research Tech. Ltd. v. Barr
Labs., Inc., 625 F.3d 724, 733-734 (Fed. Cir. 2010) (evidence that inventor co-authored articles
493
contradicting patent specification insufficient to establish intent to deceive PTO).) Staff sums up
by saying Apple has not alleged with any particularity who exactly attempted to deceive the
USPTO or how they attempted to do so, and absent any evidence of intent to deceive, there can
be no fining of inequitable conduct as a matter of law. (Id.)
Apple replies to both Samsung and Staff by declaring that Dr. Stark's testimony was un-
rebutted, and arguing that, lacking witness testimony or other evidence, the opposition's
arguments largely mirror their obviousness and derivation arguments and are, therefore, incorrect
for the reasons offered by Apple with respect those arguments. (RRBr. at 76-77.) As for
Samsung's and Staff s arguments that RX-1527C; RX-0927 lack materiality because they do not
recite the identical rate-matching pattern claimed in the '644 claims, Apple responds that prior
art does not have to teach every limitation identically in order to be material. (Id. at 77 (citing
Aventis, 2012 U.S. App. LEXIS 7095 at *20 (defining materiality)), and Apple says that RX-
1527C; RX-0927 are what Mr. Kim and Samsung actually used to derive the '644 claims,
unbeknownst to the USPTO. (Id.) Apple argues that Mr. Kim and Samsung kept this fact to
themselves, and Apple contends that no art before the USPTO was anywhere as close to being as
material. (Id. (citing Tr. (Stark) at 2257, 2260-61).)
According to Apple, it is undisputed that, for the case of a 6-bit AG, Siemens's Figure 24
directly teaches every limitation of transmitter claim 1 other than the specific puncture positions
of the rate-matching pattern, and renders the corresponding limitations of receiver claims 9 and
13 obvious. (Id. (citing RX-54; Tr. (Kim) at 339-342; Tr. (Min) at 3080-81).) Moreover, the
puncture positions were obvious from Siemens's RX-1527C, which Mr. Kim { [redacted]
}. (Id. (citing RX-54; RX-1527C).) Because Mr. Kim admitted that his {[redacted]},
494
those facts would unquestionably have been material to a reasonable
examiner, according to Apple. (Id.) And had they been revealed, the '644 claims would not
have issued in their current form (the form covering what Mr. Kim and Samsung proposed to
RAN 1 for standardization). (Id.) Apple says that Mr. Kim's contemporaneous admissions to
RAN 1 that he "took" Siemens's HS-SCCH technology that is described in RX-152.7C in order
to derive his '644 rate-matching cannot be reconciled with Samsung's newly asserted, and
unexplained, suggestion that the "the inventors used [RX-1527C] as a baseline, but it did not
work. (Id. at 77-78 (citing CBr. at 134).) To the contrary, argues Apple, Mr. Kim admitted to
extensive use of Siemens's prior art to derive his '644 rate-matching claims, and that conduct
rendered these references highly material. (Id. at 78.)
Apple alleges that Mr. Kim and his co-inventors intentionally withheld RX-1527C; RX-
0927 with the intent to mislead the USPTO as to the patentability of their claims, and this fact is
clear, convincing, and remarkably voluminous, as detailed in Apple's opening brief, (Id.) To
carry out this policy, says Apple, the named inventors actively represented one thing to 3GPP
("we took the similar concept as used for the HS-SCCH" RX-0125)), while at the same time
concealing these facts from the USPTO. (Id. (citing CBr. at 131-134).) The named inventors
{[redacted]}
just weeks before filing their first Korean patent application
(CX-1857C at 2 {[redacted] }; RX-739C at 4 (same)), but never provided RX-
1527C, or any other version of RX-54, to any patent office, according to Apple. (Id.) The
named inventors used RX-0927 to set the {[redacted]}, but never revealed that fact to the USPTO and even attempted to hide it during
discovery and at trial in this Investigation, argues Apple. (Id. (citing CBr. at 131-134).)
495
Apple maintains that Samsung's post-hearing brief addresses none of this conduct or any
of the copious other evidence of intent set forth in both Apple's pre-hearing brief and at trial.
Accordingly, Samsung has waived any responsive arguments under Ground Rule 10.1, which
bars raising such arguments for the first time in reply. (Id.) Instead, argues Apple, Samsung
resorts to unsupported platitudes, for example, that "gross negligence" is not enough. (Id. (citing
CBr. at 134).) Apple says that Mr. Kim's deciding to hide from the USPTO the very documents
from which he took the '644 rate-matching pattern was not mere negligence; it was intentional.
(Id. (citing RX-0125; CBr. at 131-134).) Apple argues that Mr. Kim, his named co-inventors,
and Samsung's "patent team" were motivated by Samsung's {[redacted]}. (Id. at 78-79 (citing JX-9C (Choi Dep.) at 31-33; RX-0163C at 23-24).)
Apple argues that, had RX-1527C or RX-0927 been revealed, the '644 claims would not
have issued in the form proposed to RAN 1 for standardization. (Id. at 79.) The named
inventors thus had every incentive to hide from the USPTO what they { A
} (Id. (citing RX-739C at 4).) As concerns Samsung's argument that there
can be no intent to conceal because the HS-SCCH proposal supposedly "did not work[,]" Apple
counters that this conclusory argument is belied by Mr. Kim's own trial testimony, where he
admitted that { i
[ }, which is the
pattem claimed in the '644 patent. (Id. (citing Tr. (Kim) at 357-360, 366-367).) Far from
teaching that the reference did not work, RX-1527C; RX-0927 taught everything Mr. Kim or any 496
person of ordinary skill in the art would have needed know in order to derive the '644 claims.
(Id.)
Apple sums up by saying that Mr. Kim's, his co-inventors', Hee Don Gha's, and
Samsung's intent to deceive the USPTO regarding the patentability of the '644 claims is evident
from the motivation Samsung's {[redacted]} (Id.)
The Administrative Law Judge finds that there is not clear and convincing evidence that
inequitable conduct was committed during the prosecution of the '644 patent before the USPTO.
"To prevail on a claim of inequitable conduct, the accused infringer must prove that the patentee
acted with the specific intent to deceive the PTO." Therasense, Inc. v. Becton, Dickinson and
Co., 649 F.3d 1276, 1290 (Fed. Cir. 2011). "A finding that the misrepresentation or omission
amounts to gross negligence or negligence under a 'should have known' standard does not
satisfy this intent requirement." (Id.) "'ln a case involving nondisclosure of information, clear
and convincing evidence must show that the applicant made a deliberate decision to withhold a
known material reference."' (Id. (citation omitted).) "In other words, the accused infringer must
prove by clear and convincing evidence that the applicant knew of the reference, knew that it
was material, and made a deliberate decision to withhold it." (Id.) Dr. Stark only opined
regarding materiality for R1-02-0604, which is Siemens's HS-SCCH proposal, and R1-041520,
which is Siemens's E-DCH proposal. (Tr. (Stark) at 2257, 2261.) Because these references are
missing many of the claimed limitations, including the claimed rate-matching pattern, they do
not rise to the level of materiality that is required for inequitable conduct: it cannot be concluded
that had these references not been omitted the patent would not have issued. Mr. Young-Bum 497
Kim testified that the HS-SCCH proposal did not even work as it applied to the E-AGCH. (Tr.
(Kim) at 288.) Therefore, it is, at best, debatable whether that reference was material to claims
related to the E-AGCH. (Tr. (Min) at 3042-43.) The inventors did not invent anything {[redacted]
}. (Tr. (Kim) at 296-298,
RX-0153; RPX-031C.) The evidence fails to support Apple's assertion that the inventors
believed the HS-SCCH invention was material to the '644 patent. By the time the invention was
complete and the claimed rate-matching pattern was developed, the inventors had concluded,
according to the testimony of Mr. Kim, that the HS-SCCH proposal was not related to the '644
invention. (Tr. (Kim) at 296-98.) For these reasons, the Administrative Law Judge concludes
that in this Investigation there is no clear and convincing evidence that there was a deliberate
decision to withhold material evidence during the prosecution of the '644 patent that renders it
unenforceable.
VII. PATENT EXHAUSTION DEFENSE
A. Law
"[T]he initial authorized sale of a patented item terminates all patent rights to that item."
Tessera, Inc. v. International Trade Comm 'n, 646 F .3d 1357, 1369 (Fed. Cir. 2011) (quoting
Quanta Computer, Inc. v. LG Elecs., Inc., 553 U.S. 617, 625 (2008)). At issue is whether
Samsung has authorized certain sales of products "embodying the asserted patent." (Id.)
B. Patent Exhaustion and Contract Bar by Reason of an Intel-Samsung Licensing
Agreement
1. Intel's Baseband Processors
Apple says that Samsung, as part of a cross-license agreement for portfolios of patents,
licensed the '348 and '644 patents to Intel Corporation, which supplies the baseband processor
chips incorporated in the accused iPhone 4, iPhone 3G, iPhone 3GS, iPad 3G, and iPad 2 3G.
498
(RBr. at 140.) Apple maintains that this license agreement bars Samsung from asserting the '348
and '644 patents against Apple products containing Intel chips, because the agreement
authorized sales by Intel of baseband processor chips to Apple, thereby exhausting any of Samsung's patent rights that relate to those chips. (Id.) According to Apple, Samsung's '644
and '348 infringement claims against the iPhone 4, iPhone 3GS, iPhone 3G, iPad 2 3G, and iPad
3G target functionality that is substantially embodied in the Intel chips, and because these patents
are exhausted as to those chip components in the Accused Products, Samsung's '644 and '348
claims must fail on this ground as well. (Id.)
More specifically, Apple says that, effective January 1, 1993, Intel and Samsung
executed a "Patent Cross Licensing Agreement," which was thereafter amended twice. (Id. at
141 (citing RX-0207C, RX-0208C, RX-209C).) {[redacted]
}. (Id. (citing JX-0006C (Ahn Dep.) at 44-45).) Apple says that
Samsung does not contest this assertion nor the fact that the '348 and '644 patents fall within the
"Samsung Patents" licensed under the agreement. (Id.) Nor, says Apple, does Samsung contest
that, as a technical matter, { [redacted]
}" (Id. (citing RX-207C § 1.14).)
Apple says that, { [redacted]}. (Id. (citing RX-
209C § 3.1).) According to Apple, Intel, through its subsidiary Intel Americas, Inc., sells
499
baseband chips to Apple {[redacted]}" (Id. (citing RX-1236C, RX-1237C).) Apple contends, therefore, that Intel's sales
to Apple fall within "[t]he longstanding doctrine of patent exhaustion [which] provides that the
initial authorized sale of a patented item terminates all patent rights to that item." (Id. (citing
Quanta Computer, Inc. v. LG Elecs., Inc., 553 U.S. 617, 625 (2008)).) Apple argues that
Samsung cannot assert these patents against the Intel baseband chips that are incorporated in
Apple products. (Id.) With those chips removed from the infringement analysis, Samsung's
'644 and '348 claims against iPhone 4, iPhone 3GS, iPhone 3G, iPad 2 3G, and iPad 3G
collapse, because those claims are directed at features in and functionality of the Intel chips. (Id.
at 141-142.)
Apple acknowledges that Order No. 47 found that there was an outstanding factual issue
as to whether Intel's sales to Apple were United States sales, as is required for exhaustion of the
patents. (Id. (citing Order No. 47 at 33-34).) Apple says that these sales do exhaust Samsung's
United States patents, for two reasons: (1) {[redacted] }; and
(2) under Federal Circuit precedent, Intel's sales to Apple were United States sales. (Id.)
Apple argues that Fujifilm Corp. v. Benun, 605 F .3d at 1366 (Fed. Cir. 2010), which
requires that any sales for purposes of exhaustion to occur within the United States, is inapposite,
because that decision {[redacted]}.
500
(Id.)
Furthermore, according to Apple, the sales of Intel chips to Apple were, as a matter of
law, United States sales under 35 U.S.C. § 271, which provides that a "sale" occurs in the United
States when the "essential activities" of a sale take place here. (Id. (citing Litecubes, LLC v.
Northern Light Prods., Inc., 523 F.3d 1353, 1370-71 (Fed. Cir. 2008).) Apple notes that {[redacted]}.
(Id. (citing Tr.
(Blevins) at 966-971).) The essential activities of the Intel sales, argues Apple, occurred in the
( United States, making these transactions United States sales. (Id. (citing Certain Electronic
Devices with Image Processing Systems, Components Thereof and Associated Software, Inv.
No. 337-TA-724, Initial Determination at 264 (July 1, 2011 (Id. at 142-143.)
Samsung counters by saying that Apple has failed to prove its exhaustion defense,
because Apple erroneously maintains that an initial sale of an infringing baseband processor in
the United States is not required insofar as {[redacted]}.
(CRBr. at 89-90.) Samsung argues that
the fundamental requirement of an initial United States sale has recently been reaffirmed by the
Federal Circuit in the case of Ninestar Tech. Co. v. Int 'l Trade Comm 'n, 667 F.3d 1373 (Fed.
Cir. 2012) ("[P]atents are subject to exhaustion upon sale of product or components in the United
States.") According to Samsung, nothing in Ninestar or Fujifilm suggests that this requirement
can be ignored simply because {[redacted]} (Id. at 90.)
501
Samsung says that in LaserDynamics, Inc. v. Quanta Storage America Inc., No. 2:06-CV- 348-TJW-CE, 2009 U.S. Dist. LEXIS 115848 at *3 (E.D. Tex. 2009), {[redacted]} did not change the rule that exhaustion requires an authorized first sale in the
United States. (Id.) In Fujifilm Corp. v. Benun, No. 05-cv-1863 (KSH), 2009 U.S. Dist. LEXIS
64465 (D. NJ. 2009) (afford 605 F.3d 1366 (Fed. Cir) 2010), the district court surveyed the state
of exhaustion law, noting that "the controlling rule of law. . .remains that U.S. Patent rights are
only exhausted when the patentee (or licensee) sells the patented article in the United States."
2009 U.S. Dist. LEXIS 64465 at *9; Medlmmune, LLC v. BioPharma, Inc., No. C 08-9550 JF
HRL, 2011 WL 61191 at *17 (N .D. Cal. 2011) (finding that even with the existence of a license,
exhaustion can only occur by sale in the United States)).) Samsung contends that the law is clear
that, in order for the doctrine of patent exhaustion to apply, the authorized first sale of the
infringing article must in fact occur in the United States; but Apple failed to prove this
requirement, and therefore, Apple's affirmative defense to infringement liability fails. (CRBr. at
90.)
Samsung also disputes Apple's contention that the sales of infringing baseband
processors occur in the United States as a matter of law under 35 U.S.C. § 271 because the sales
of Intel's chips were made in the United States, owing to the fact that all of the "essential
activities" of the sales took place here. (Id.) Samsung argues that a sale under 35 U.S.C. §
271(a) occurs when the "essential activities" of that sale take place in the United States. (Id. at
90-91 (citing MEMC Elec 's Materials, Inc. v. Mitsubishi Materials Silicon Corp., 420 F.3d 1369,
1375-77 (Fed. Cir. 2005). Samsung says that a number of courts have further elaborated on what
the definition of "essential activities" means in the context of Section 271(a). For example, in
Quality Tubing Inc. v. Precision Tube Holdings Corp., 75 F. Supp. 2d 613 (S.D. Tex. 1999), the
502
court attempted to define "sale" with greater precision, saying that a "sale" presupposes not
merely an agreement to sell, but performance of that agreement." Quality Tubing Inc. v.
Precision Tube Holdings Corp., 75 F. Supp. 2d at 62l. Samsung says the court held that
negotiation of a contract to sell, standing alone, does not constitute an infringing sale under
Section 271(a); there has to be performance. (CRBr. at 90.)
Samsung says this view was reinforced in Wing Shing Prods. Ltd. v. Simatelex
Manufactory Co., 479 F. Supp. 2d 388, 403 (S.D.N.Y. 2007), where the court concluded that
MEMC did not hold that an actual sale took place in the United States, because "the plaintiff
could not show any 'contracting and performance'--i.e., the 'essential activities' by the
defendant in the United States." (Id.) According to Samsung, a critical part of the "essential
activities" that constitute a sale in the United States are delivery and performance, and where
delivery has not taken place in the United States, patent rights are not exhausted. (Id. (citing
Minebea Co., Ltd. v. Papst, 444 F. Supp. 2d 68, 146 (D.D.C. 2006); Cornell Research Found.,
Inc. v. Hewlett-Packard Co., 2007 WL 4349135, *51 (N .D.N.Y. J an. 31, 2007)).)
Samsung says that Apple has not come close to establishing that all "essential activities"
concerning the supply of the Intel and Qualcomm chips occur in the United States, let alone that
these transactions were even negotiated here. (Id.) With respect to Intel, {[redacted]}.
(Id. at 92 (citing Tr. at 993-999 (Blevins)).) Similarly,
argues Samsung, nowhere does Apple assert that the actual performance of lntel's or
Qualcomm's sales occurred in the United States. (Id.) According to Samsung, Mr. Blevins
___________
85 Intel acquired Infineon after the Samsung-Intel agreement was executed.
503
confirmed that {[redacted]}. (Id. (citing Tr. at 958, 968, 975, 985-
988, 990, 992-993, 1002-04 (Blevins)).) Instead, says Samsung, {[redacted]}. (Id.) Samsung contends that Apple has not
demonstrated that delivery of the chips and, therefore, performance of the sales contract, occurs
in the United States. (Id.) Samsung argues that mere negotiation of a contract, by itself is
insufficient to satisfy the requirements of "essential activities" that an actual sale occurred in the
United States, pursuant to Section 271(a). (Id.)
Samsung says that Apple's reliance on Certain Electronic Devices is misplaced, because
in that case there was a finding that a sale had occurred since "all of the purchase and sale
negotiations, product engineering, testing, prototyping, product selection, and engineering" took
place in the United States. (Id. at 92-93 (citing Certain Electronic Devices with Image
Processing Systems, Components Thereof and Associated Software, Inv. No. 337-TA-724, 2011
WL 3385131, Initial Determination at *151 (U.S.I.T.C., 2011)).) In this Investigation, argues
Samsung, Apple has not shown that any of those things occurred in the United States. (Id. at 93.)
Samsung says that Apple has improperly interpreted {[redacted]}" (Id. (citing
CBr. at 141).) Samsung says that Apple ignores { [redacted]]
____________
86 See Order No. 49 at 33.
504
{[redacted] } (Id.) Given this limitation,
argues Samsung, it would violate the obvious purpose and intent of the agreement if {[redacted] } could
simply do an end run around {[redacted]}. (Id.) Such an interpretation
would render the {[redacted]}; therefore, Apple's interpretation of the {[redacted] } cannot be
reconciled with the provisions of the agreement. (Id.)
Staff contests Apple's claim that the evidence is sufficient to establish Apple's
exhaustion defense, noting that the Federal Circuit has held that a patent is not exhausted if the
sale of the allegedly infringing article was not in the United States. (SBr. at 65.) Staff points out
that the evidence does not establish that there were authorized sales of the accused components
in the United States, since Mr. Blevins was unable to provide the necessary details, as
exemplified by this colloquy during his cross-examination at the hearing:
505
{ [redacted]}
(Id. (citing Tr. (Blevins) at 995-996).) Staff says there was objection to what was represented to
be { [redacted]}
ultimately that document was not offered into evidence. (Id. (citing Tr. (Blevins) at 996-996).)
Staff maintains that in the absence of specific evidence of sales in the United State from Intel and
Qualcomm to Apple, and in the absence of proof that those sales were authorized by Samsung,
Apple has not met its burden of proof necessary to sustain its affirmative defense of patent
exhaustion. (Id.)
In its reply brief, Apple points out that Samsung's '348 and '644 patent infringement
claims against Apple concern Intel's baseband processors and Apple contends that {[redacted]}. (RRBr. at 90.) Apple argues that it follows,
therefore, that the Samsung-Intel agreement precludes enforcement of Samsung's infringement
actions against Apple with respect to the '348 and '644 patents. (Id.) First, with respect to
Samsung's contention that Intel never made a United States sale to Apple triggering patent
exhaustion, Apple rejoins that even if the Federal Circuit's locus-of-sale precedent applied to {[redacted]}, which Apple says it does not, {[redacted]}, as
a matter of law, United States sales under 35 U.S.C. § 271. (Id. at 90-91.) A "sale" under 35
U.S.C. § 271 occurs in the United States when the "essential activities" of a sale occur here. (Id.
506
(citing Litecubes, LLC v. Northern Light Prods., Inc., 523 F.3d 1353, 1370-71 (Fed. Cir. 2008)).) {[redacted]}. (Id. at 91 (citing Tr. (Blevins) at 966-971).) Apple therefore
concludes that the "essential activities" of the Intel sales occurred in the United States, making
these United States sales. (Id.)
Apple disputes Samsung's assertion that what matters for the locus-of-sale requirement is
whether the Intel baseband processors were delivered to Apple in the United States. Apple
counters that delivery of the licensed articles in the United States is not the law, citing North
American Philips Corp. v. American Vending Sales, Inc., 35 F .3d 1576, 1579 (Fed. Cir. 1994)
("it is possible to define the situs of the tort of infringement-by-sale either in real terms as
including the location of the seller and the buyer and perhaps the points along the shipment route
in between, or in formal terms as the single point at which some legally operative act took
place .... [A]ppellee has failed to explain why the criterion should be the place where the legal
title passes rather than the more familiar places of contracting and performance.") (Id. (also
citing MEMC Elec. Materials, Inc. v. Mitsubishi Materials Silicon Corp., 420 F.3d 1369, 1377
(Fed. Cir. 2005) (focusing on the location of contracting and finding that a sale occurred in Japan
where all of the negotiations, ordering, invoicing, and shipping instructions occurred, despite the
fact that delivery was in Texas).) Apple again cites to Certain Electronics Devices with Image
Processing Systems, Components Thereof and Associated Software, Inv. No. 337-TA-724,
507
Initial Determination at 264 (July 1, 2001) ("Whether these products were produced and
delivered to Apple or its fabricators outside the United States does not alter the fact that the sales
and purchases between the parties were consummated in California."). (Id. at 91-92.)
Apple also disputes Samsung's assertion that {[redacted]}, Apple responds that this is erroneous and cites
Thorn EMI N.A. v. Hyundai Elecs. Indus., 1996 U.S. Dist. LEXIS 21170 (D. Del. 1996), a case
in which the court reviewed a license {[redacted]}. (Id. (citing Thorn at
*13).) According to Apple, the court in that case, relying on Federal Circuit precedent, first
concluded that the right to sell included products manufactured by others outside of the "have
made" rights. (ld. (citing Thorn at *11-13 (citing Cyrix Corp. v. Intel Corp., 77 F.3d 1381 (Fed.
Cir. 1996)).) Apple says the court in Thorn next explained that "have made" rights not only
protect the licensee, they also protect the manufacturer that makes patented products for the
licensee. (Id. (citing Thorn at *14-15).) According to Apple, the court in
Thorn therefore held
that the limitations on the "have made" rights would not be read out of the contract by giving full
effect to the unlimited right to sell -- they would still determine whether the manufacturer
infringed. (Id.)
The Administrative Law Judge concludes that the evidence is not sufficient to support
Apple's patent exhaustion defense. According to Mr. Blevins, Intel acquired the German
company Infineon's wireless solutions business in January 2011. (Tr. at 988, 990) Intel then
508
caused a corporation to be created for that business, Intel Mobile Communications ("IMC").87
{[redacted]}. (Id.) Apple has not adequately correlated its
legal arguments and citations to the particular facts of this Investigation. The fact that {[redacted] } are not proof that the
"essential activities" of the sale take place in the United States for purposes of establishing patent
exhaustion.
Nor does Apple's evidence demonstrate the applicability of the Samsung-Intel agreement
with respect to the events that are the subject of this Investigation. {[redacted]}. (RX-O27OC at §§ 1.2,
6.1.) { [redacted]}
_____________
87 Mr. Blevins testified that he had been of the belief that IMC was a division of Intel, rather than a separate
corporation. (Tr. at 991.)
509
{[redacted]}
(RX-207C at § 6.4.) {[redacted] } is not germane to any issue presented in this case. Paragraph
3.3 recites thus:
{[redacted]}
(Id. at § 3.3.) There is no evidence that {[redacted]}. Neither has there been any legal principle cited by
Apple why it should be concluded that {[redacted]}. Intel acquired the business
that manufactures the baseband chips at issue from Infineon, a German company, and the terms
of that agreement are not known, nor what if any impediments it might have imposed on Intel as
510
Part 9 (pp. 511 to 528):
{[redacted]} .
2. Qualcomm's Baseband Processors
Apple contends that an agreement between { [redacted]}
511
{[redacted]} (Id. at 143-144 (citing RX-0l73C at 52126).)
This covenant, argues Apple, constitutes "authority" for patent exhausting purposes. (Id.
at 144 (citing TransCore, LP v. Electronic Transaction Consultants Corp., 563 F.3d 1217, 1724
(Fed. Cir. 2009) (holding that "an unconditional covenant not to sue authorized sales by the
convenantee for purposes of patent exhaustion").) Apple says {[redacted]}
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{[redacted]}. (Id. (citing Tr. (Blevins) at 975-976).) Thus, argues Apple, as with the
Samsung-authorized Intel chip sales, the Samsung-authorized Qualcomm chip sales
"terminate[]
all patent rights to th[ose] item[s]." (Id.)
As in the case of the Intel baseband processors, Apple contends that Federal Circuit
precedent regarding the territorial requirement for patent exhaustion {[redacted]}.
(Id. at
144-145).) Apple contends that this is another basis for patent exhaustion as respects
Qualcomm's accused chips. (Id. at 145.)
Apple contends that the evidence demonstrates that {[redacted]}
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{[redacted]}
Apple disagrees with that portion of Order No. 47 that found that, under the Samsung-
Qualcomm agreement, Samsung could {[redacted]}. (Id. at 146 (citing Order No. 47 at 35-36).) Apple says the cited portion of Order No. 47 is erroneous in two ways. First, the order
514
treated the key issue for revocation as a choice between French law, which governs Sarnsung's
FRAND commitment, and {[redacted}]. (Id. (citing Order No. 47 at 35-36).) Apple says that there is no dispute that
{ [redacted]}, but the relevant issue does not turn
on construction of that contract; rather the critical issue is whether Samsung breached a second,
separate obligation, namely, Samsung's commitment to ETSI to grant irrevocable FRAND
licenses to Samsung's allegedly "essential" patents (including the '644 patent). (Id.) The real
question, according to Apple, is whether Samsung's FRAND commitment means what it says-
i.e., that Samsung would not revoke licenses to its declared-essential patents. (Id.) Apple argues
that Dr. Walker's testimony established that, once given, an "irrevocable" commitment to license
on FRAND terms cannot be revoked. (Id. (citing Tr. (Walker) at 1348-49).) Accordingly,
Samsung's purported terminations are ineffective. (Id.) Apple says that this is exactly what two
courts (in the Netherlands and France) have already concluded. (Id. (citing Samsung Electronics
Co./Apple Inc., District Court of The Hague ¶ ¶ 4.15-4.20, Mar. 14, 2012; Tribunal de Grande
Instance, Paris, RG No. 11/58301, Dec. 8, 2011 at 16 (attached as Exhibit C).)
Second, argues Apple, Order No. 47 suggested that the question whether Samsung's
attempted revocation of the {[redacted] } complied with ETSI rules was "for
the appropriate tribunal," not for the Commission. (Id. at 147 (citing Order No. 47 at 36).)
Apple says that United States tribunals, including the Commission, have well established
authority to adjudicate compliance with standard-setting rules, and Apple requests that the
Administrative Law Judge in this Investigation exercise that authority. (Id. (citing, Qualcomm,
548 F.3d at 1022 (affirming holding of waiver defense to patent enforcement based on
patentee's failure to comply with standard-setting disclosure rules).) Apple continues to
515
maintain that the un-rebutted expert testimony shows that under ETSI rules, FRAND licenses
cannot be revoked, and those rules apply equally here. (Id.)
Samsung says that the {[redacted])" (Id. at 252 (citing RX-0175C at § 5.6).) Here, argues Samsung, Apple
brought infringement claims against Samsung and, { [redacted]}. (Id.
(citing CX-1587C).)
Samsung says that Apple failed to identify any case or authority that would permit the
Commission from preventing Samsung from exercising its express contractual rights under the
Qualcomm agreement. (CRBr. at 94.) Although Dr. Walker testified that FRAND commitments
were irrevocable, he admitted that he had never participated in the negotiations of licenses and
516
that he has no expertise in licensing agreements or United States contract law. (ld. (citing Tr.
(Walker) at 1397-99).) As such, argues Samsung, Apple has not established through any
evidence or case law that Samsung's commitments to ETSI prevent it from entering into
agreements that expire after a term (e. g., five years) or expressly permit the parties to defensively
terminate specific covenants when certain conditions are met. Significantly, says Samsung,
Apple offers no evidence from its supplier Qualcomm that it protested Samsung's actions. (Id. at
95.)
Staff says that the evidence is not sufficient to show that Samsung exhausted its rights
under the '348 and '644 patents as applied to the Qualcomm baseband processor chips in the
Apple accused product. (SRBr. at 16.) Staff says that the evidence is insufficient to show that
there were United Sates sales of the licensed items. (Id.) With respect to Apple's argument that
the {[redacted] }, Staff contends that this misses the
point, which is the territorial reach of United States patent law. (Id. at 17 (citing International
Rectifier Corp. v. Samsung Elecs. Co., 361 F.3d 1355, 1360 (Fed. Cir. 2004) ("Further, it is well
known that United States patent laws 'do not, and were not intended to, operate beyond the limits
of the United States[.]'") (quoting Brown v. Duchesne, 60 U.S. 183, 195 (1856).) Staff notes that
in Fuji Photo Film, the Federal Circuit confirmed that a patent is not exhausted by a sale outside
the United States of a product that is alleged to embody the claimed invention. (Id. (citing Fuji
Photo Film Co. Ltd. V. Jazz Photo Corp., 394 F.3d 1368, 1376 (Fed. Cir. 2005); Jazz Photo
Corp. v. Int 'l Trade Comm 'n, 264 F.3d 1094, 1105 (Fed. Cir. 2001) ("United States patent rights
are not exhausted by products of foreign provenance. To invoke the protection of the first sale
doctrine, the authorized first sale must have occurred under the United States Patent.").) Staff
also cites Fujifilm Corp. v. Benum, 605 F .3d 1366, 1371-72 (Fed. Cir. 2010) (reaffirming
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territoriality requirements).) Thus, argues Staff, for the doctrine of patent exhaustion to apply,
Qualcomm's authorized sales to Apple would need to qualify as "United States sales" even if
they were made {[redacted] }. (Id.)
As regards Apple's argument that Qualcomm's sales to Apple were United States sales,
even though all manufacture, shipping, and delivery took place outside the United States,
because "essential activities" of sales occurred in the United States, Staff notes that in Litecubes,
LLC v. Northern Light Prods., Inc. , 523 F.3d 1353, 1370-71 (Fed. Cir. 2008), a case relied on by
Apple, the Federal Circuit affirmed a jury's conclusion that sales had occurred within the United
States because "the American customers were in the United States when they contracted for the
accused cubes, and the products were delivered directly to the United States. (Id. at 17-18.)
Staff says that in this Investigation { [redacted]}.
(Id. at 18
citing Tr. (Blevins) 985, 987-988, 990, 992-993, 1004).) Absent delivery in the United States,
Staff says that much more evidence would be needed than was presented at the hearing in order
to establish that sales of baseband processors from Qualcomm to Apple qualify as United States
sales for patent exhaustion purposes. (Id.)
As in the case of the Samsung-Intel agreement, Staff maintains that Mr. Blevins was
unfamiliar with the underlying documents pertaining to the transactions between Samsung and
Qualcomm as would be necessary to demonstrate that there were authorized sales by Samsung
for the purpose of patent exhaustion. (Id. at 18.)
The Administrative Law Judge finds that the evidence is not sufficient to support Apple's
allegation of patent exhaustion with respect to the Qualcomm baseband chips that are
incorporated in the Accused Products. The Administrative Law Judge concludes that the
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evidence does not demonstrate that there were authorized sales of Qualcomm baseband chips in
the United States, owing to the inadequacy of Mr. Blevins's testimony, who was unable to
provide sufficient information that the "essential activities" for a sale occurred in this country.
The Administrative Law Judge also concludes that Samsung, {[redacted]}. (See Order No. 47 at 35.) As regards Dr. Walker's testimony, the
Administrative Law Judge concludes that, while Dr. Walker could offer expert testimony on
operational and procedural aspects of ETSI, he could not express opinions of matters of law. To
the extent that Apple relies on Dr. Walker's testimony for its assertions that Samsung could not
exercise its modification rights under the Samsung-Qualcomm agreement, that testimony is
found wanting. Furthermore, {[redacted]}. Apple has not
offered any other evidence sufficient to demonstrate why or how Samsung's exclusion of Apple
from Samsung's cross-licensing agreement with Qualcomm is violative of Samsung's FRAND
obligations to ETSI. Insofar as the evidence that exists in this Investigation, there is no showing
that anyone, including Apple, has complained to the ETSI General Assembly about any
improprieties of Samsung regarding its conduct with respect to any standard relevant to the
issues involved in this investigator or to the '348 or '644 patents or to its FRAND obligations.
And despite the fact that the ETSI Guide on IPRs has a provision for dispute resolution (See RX-A0713 at Clause 4.3), there is no evidence that Samsung ever refused a request by Apple for
mediation of the FRAND aspects of Samsung and Apple's impasse over licensing terms. And
even though Apple claims that {[redacted]}, according to one of the cases Apple relies on, Apple v. Motorola,
519
No. 1:11-cv-03540 (N .D. Ill.), Motorola had requested a 2.25 percent royalty rate of sales, which
is closely comparable. (Id. at 17.) While this may be an apples and oranges comparison, the fact
is that Apple has offered only attorney argument, rather than substantive evidence, that Samsung
breached its FRAND obligations. From all appearances, {[redacted]}, even though there was a
mechanism in place under ETSI Guidelines for resolving disputes. Dr. Walker did not testify, nor
could he, as to the bona fides of Samsung's licensing offer to Apple; nor did anyone else. Judge
Posner, in the Motorola case found the expert evidence offered by the parties with respect to
damages inadequate, but similarly, Apple's evidence of what constitutes a FRAND license under
the facts of this Investigation is inadequate.
For reasons previously discussed, the
Administrative Law Judge finds that there is insufficient evidence to warrant a finding that
Samsung breached its obligations with respect to its membership, and participation in ETSI.
For the foregoing reasons, the Administrative Law Judge concludes that Apple has not
sustained its burden of proof that Samsung's sales to Qualcomm serve to exhaust Samsung's
patent rights with respect to the '348 and the '644 patents.
3. Apple's Post-Hearing Assertion of Issue Preclusion on the Issue of Patent
Exhaustion
Subsequent to the hearing in this Investigation, on August 30, 2012, Apple submitted
what it styled a "Notice of Supplemental Authority Regarding Issue Preclusion as to Apple's
Exhausting Defense" ("Notice"). In its Notice, Apple maintains that by virtue of a jury verdict
rendered on August 24, 2012 in a case entitled Apple, Inc. v. Samsung Electronics Co. Ltd. et
al., No. 5:11-cv-01846 (N .D. Cal.) ("the District Court case"), certain elements of Apple's
patent exhaustion defense should be treated as already proven in this Investigation under the
doctrine of issue preclusion. (Notice at 1.) Specifically, Apple asserts that the following
520
elements of its patent exhaustion defense should be deemed proven based on the jury verdict: (1)
that Intel was authorized to sell the baseband processor chips under terms of the Samsung-Intel
License agreement, and (2) that the sales from Intel to Apple were made in the United States.
(Id.) Apple argues that based on the jury verdict on these elements and the fact that Samsung
does not contest the third element of Apple's patent exhaustion defense - i.e. that, to the extent
there is infringement, it is because the Intel baseband processor chips substantially embody the
'348 and '644 patents -- Apple's Samsung-Intel license-based exhaustion defense has been
resolved in Apple's favor. (Id. at 1-2.)
Apple says that Samsung accused Apple of infringing U.S. Patent Nos. 7,447,516 and
7,675,941 in the District Court case and those infringement allegations relate solely to the Intel
baseband processors, PMB 8878 and PMB 9801, incorporated in the iPhone 4 and iPad 2 3G.
(Id. at 4, (citing Exs. B, C).) In its defense of these infringement allegations, Apple says it
introduced the Samsung-Intel License as evidence that Samsung authorized Intel to sell baseband
processors indirectly through its sales subsidiary, Intel Americas. (Id. (citing Ex. D).) Apple
claims it presented evidence that it purchased these processors from Intel Americas in the United
States based on the locations of the seller, the buyer, and payment. (Id. (citing Ex. E).) Apple
claims that the jury was instructed on the three elements of the patent exhaustion defense and
based on the evidence presented the jury returned a verdict finding Samsung's patents exhausted.
(Id. at 4-5 (citing Ex. A).) Apple asserts that on August 24, 2012, the court entered judgment for
Apple on the jury issues. (Id. at 5 (citing Ex. I).)
Apple argues that under the four-part test for issue preclusion, the jury's verdict in the
District Court case "are determinative of the issues of (1) Intel's authority under the Samsung
Intel License to sell Apple the baseband processors used in the accused products, and (2) whether
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the sale of Intel baseband processors to Apple takes place in the United States." (Id. at 6-7.)
Apple asserts that those two issues in the District Court case are identical to the issues presented
in this Investigation. (Id. at 7.) Apple says the infringement allegations in the District Court
case concerned the same processors as those accused in this Investigation; the jury found that the
same license at issue in this Investigation authorized Intel to sell those processors to Apple; and
the jury found that the identical sales of those processors that are at issue in this Investigation
were made to Apple in the United States. (Id.)
Apple also contends that those two issues were actually litigated in the District Court
case. (Id.) In support, Apple says these issues were central to Apple's patent exhaustion
affirmative defense, which was the subject of evidence presented at trial and argued by both
parties. (Id.) Apple also says that Samsung cannot avoid issue preclusion by arguing that it did
not actually litigate the issues because it focused on other issues at the trial. (Id. at 7-8 (citing
Charles Alan Wright & Arthur R. Miller, 18 Federal Practice and Procedure § 4419 (2d ed. 2002
& Supp. 2012).)
Apple next claims that resolution of these two elements was essential to a final judgment
in the District Court case because in order to find that Samsung's patent rights to the '516 and
'94l patents were exhausted, the jury necessarily had to find that Samsung had authorized Intel
to sell the baseband processors and those sales were made in the United States. (Id. at 8 (citing
Ex. H).) Apple says that Samsung cannot avoid application of issue preclusion on this point by
arguing that the jury's verdict is not final because it is subject to post-judgment motions and
appeals because the pendency of an appeal has no effect on the judgment's finality. (Id. at 9
(citing SSIH Equip., S.A. v. U.S.I.T.C., 718 F.2d 365, 370 (Fed. Cir. 1983); Pharmacia & Upjohn
Co. v. Mylan Pharmaceuticals, Inc., 170 F.3d 1373, 1381 (Fed. Cir. 1999); Certain Personal
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Computers with Memory Management Information Stored in External Memory and Related
Materials, Inv. No. 337-TA-352, Order No. 25, 1994 WL 930225, at *3 (U.S.I.T.C., June 6,
1994)).) Apple also says that Samsung cannot avoid issue preclusion by arguing that, because
the jury found for Apple on multiple bases, its findings on these two elements were not essential
to the final judgment. (Id. at 9-10 (citing Restatement (First) of Judgments § 68, comment n; 18
Wright & Miller, Federal Practice and Procedure § 4421, at 564 (2d ed. 2002); Mendenhall v.
Barber-Greene Co., 26 F.3d 1573, 1583 (Fed. Cir. 1994); Jean Alexander Cosmetics, Inc. v.
L'Oreal USA, Inc., 458 F.3d 244, 255 (3d Cir. 2006); Magnus Elecs., Inc. v La Republica Arg.,
830 F.2d 1396, 1402 (7th Cir. 1987); Gelb v. Royal Globe Ins. Co., 798 F.2d 38, 45 (2d Cir.
1986); In re Westgate-California Corp., 642 F.2d 1174, 1176-77 (9th Cir. 1981)).)
Finally, Apple argues that Samsung had a full and fair opportunity to litigate these two
elements in the District Court case. (Id. at 11.) Apple asserts that Samsung cannot raise any
argument under this factor because there were no significant procedural limitations in the District
Court case, Samsung had incentive to litigate these elements in that case, and there is no question
that there was actual adversity between Samsung and Apple in the District Court case. (Id.
(citing Banner v. United States, 238 F.3d 1348, 1354 (Fed. Cir. 2001)).) Apple concludes that
each of the elements for the application of issue preclusion is met with respect to whether the
license authorized the sales of the baseband processors by Intel to Apple and whether those sales
occurred in the United States, and thus, Apple says issue preclusion compels a finding that
Samsung's rights in the '348 and '644 patents are exhausted with respect to Apple accused
products containing the PMB 8878 or PMB 9801 baseband processors. (Id.)
On September 5, 2012, Samsung filed a response to Apple's Notice. Samsung asserts
that Apple's Notice is an improper use of a Notice of Supplemental Authority under the
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Commission Rules and is actually a motion for summary determination on the issue of patent
exhaustion. (Response at 1-2.) Samsung argues that this Notice was filed in disregard of the
Commission Rules and Ground rules that govern motion for summary determination and should
be disregarded because it is untimely, Apple failed to meet and confer before filing the Notice,
and Apple did not provide a statement of material facts as required by Ground Rule 2.3. (ld. at
6-7.)
Regarding the merits of Apple's arguments, Samsung argues that issue preclusion is not
appropriate here. (Id. at 7.) First, Samsung argues that the two factual findings Apple relies
upon are not issues for the purpose of issue preclusion. (Id.) Samsung says that Commission
rules do not permit Apple to seek resolution of particular subsidiary elements of a defense and a
party can only move to resolve dispositive issues and parts of issues that can dispose of a claim
or defense in its entirety. (Id. at 7-8 (citing Commission Rule 210.18(a); Certain Mobile
Telephones and Wireless Communication Devices Featuring Digital Cameras, and Components
Thereof, Inv. No. 337-TA-703, Notice of Commission Determination, 2010 ITC LEXIS 2137, at
*3-5 (Oct. 20, 2010)).) Samsung also argues that the issues presented here are not identical to
those presented in the District Court case because the District Court case did not involve any of
the patents at issue in this Investigation and different subsets of products were accused. (. at
8.) Samsung says that the only issue presented to the jury was whether sales of the iPhone 4 and
iPad 2 3G products, which incorporate the PMB 9801 chip, exhaust Samsung's rights in the '941
C and '516 patents. (Id. (citing Declaration of Gregory H. Lantier, Ex. A).) Samsung says that
products containing the PMB 8878 baseband chip were at issue in the District Court case and the
'941 and '516 patents at issue in the District Court case are not at issue here. (.) According to
Samsung, because the asserted patents at issue here were not at issue in the District Court case,
524
the jury necessarily could not have concluded that products embodying these patents were sold in
the U.S. or even covered by the Samsung/Intel license. (Id. at 9 (citing Quanta, 553 U.S. at
628).) Samsung also takes issue with Apple's contention that the Administrative Law Judge
should assume that the PMB 8878 and PMB 9801 chips embody the inventions of the '644 and
'348 patents because Apple bears the burden of affirmatively establishing each of the elements of
its patent exhaustion defense and Apple cannot simply assert that this element has not been
disputed by Samsung. (Id. (citing Jazz Photo Corp. iv. United States, 439 F.3d 1344, 1350 (Fed.
Cir. 2006)).)
Samsung also argues that the exhaustion issues presented here were not actually litigated
in the District Court case because the parties did not litigate whether Samsung's rights to the
'644 and '348 patent were exhausted or whether any rights were exhausted with respect to the
{[redacted] }. (Id. at 10.) Samsung also asserts that the elements of exhaustion were not
essential to the jury verdict because Federal Circuit case law establishes that where alternative
bases for a judgment exist, neither basis carries issue preclusive effect. (Id. 10-12 (citing Comair
Rotron, Inc. v. Nippon Densan Corp., 49 F.3d 1535, 1538 (Fed. Cir. 1995); Masco Corp. v. .
United States, 303 F.3d 1316, 1329-31 (Fed. Cir. 2002); Restatement (Second) of Judgments
(1982) § 27 comment i).) Finally, Samsung asserts that the jury verdict with respect to
exhaustion is contrary to the verdict of non-infringement. (Id. at 12.) Samsung says the jury's
findings that the '941 and '516 patents were not infringed is inconsistent with the finding that the
patents are exhausted because there cannot be exhaustion without infringement. (Id. at 13-14.)
According to Samsung, this inconsistency provides another reason why the Administrative Law
Judge should not apply the doctrine of issue preclusion here. (Id. at 14 (citing Certain
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Semiconductor Integrated Circuits Using Tungsten Metallization and Products Containing
Same, Inv. No. 337-TA-648, Comm'n Op. (U.S.I.T.C., Feb. 29, 2009)).)
On September 7, 2012, Apple filed a rebuttal to Samsung's response to Apple's Notice.
In its rebuttal, Apple argues that Samsung misstated the Federal Circuit precedent regarding
whether alternative bases for a judgment can carry preclusive effect. (Rebuttal at 1.) Apple
asserts that the Federal Circuit has rejected the Restatement (Second) of Judgments rule cited by
Samsung. (Id. (citing Comair, 49 F.3d at 1535).) Apple also argues in rebuttal that Samsung
does not dispute that the identical Samsung-Intel license at issue here was at issue in the District
Court case, that the identical facts are identical regarding the jury's finding that the sales are
made in the United States, and that the jury determined that Samsung's rights in the PMB 9801
processor were exhausted. (Id. at 2.) Further, Apple asserts that {[redacted]
}, and thus, the only relevant distinction between this Investigation and the District
Court case is the patents at issue. (Id.)
The Administrative Law Judge concludes that the jury's verdict in Apple Inc. v. Samsung
Electronics Co. Ltd. et al., No. 5:11-cv-01846 (N.D. Cal.) that "Apple has proven by a preponderance of the evidence that Samsung is barred by patent exhaustion from enforcing... [patents '516 and '941] against Apple[,]" is not issue preclusive with respect to the '348 or '644 patents in this Investigation. (Notice, Ex. A, No. 33 at 20.)
The Federal Circuit has held that issue preclusion, or collateral estoppel, "is appropriate
only if: (1) the issue is identical to one decided in the first action; (2) the issue was actually
litigated in the first action; (3) resolution of the issue was essential to a final judgment in the first
526
action; and (4) plaintiff had a full and fair opportunity to litigate the issue in the first action." In
re Freeman, 30 F.3d 1459, 1465 (Fed. Cir. 1994.)
According to the jury's verdict, they found that there was no infringement by Apple of
Samsung's asserted patents. (Notice, Ex. A, No. 24 at 17.) However, the jury also found that
Samsung's patents were exhausted by virtue of the Samsung-Intel agreement. (Id. No. 33 at 20.)
If the accused Apple products do not infringe Samsung's '516 and '941 patents, as alleged by
Samsung in the district court case, by virtue of those products' incorporation of the Intel's PMB
9801 baseband processor, then the sale of those chips by Intel would not exhaust Samsung's
patents, because the PMB 9801 logically could not have practiced all of the limitations of those
patents. The affirmative defense of exhaustion requires proof of an authorized, territorial sale of
articles embodying the patents at issue. Quanta, 553 U.S. at 628. Therefore the jury's verdict
with respect to the issue of patent exhaustion cannot be considered an essential fact
determination by the jury, since it is inconsistent with the jury's verdict that Apple's products
containing the PMB 9801 did not infringe Samsung's patents.
Although Apple maintains that these were not inconsistent verdicts, but rather, alternative
verdicts, this does not settle the question of whether the jury's verdict with respect to the issue of
exhaustion satisfies the Federal Circuit's requirement that, for purposes of issue preclusion, the
preclusive finding must be essential for a final judgment. In Comair Rotran, Inc. v. Nippon
Densan Corp., 49 F.3d 1535, 1538 (Fed. Cir. 1995), the court found that an alternative factual
finding was not essential, and therefore not issue preclusive:
[T]he specific finding concerning Nidec's fans has not been shown to be essential
to the New Jersey COl11lZ'S judgment. It suffices to negate preclusion that the
finding as to Nidec's infringement was not essential to the damages decision in
the New Jersey action. See Parklane Hosiery Co. v. Shore, 439 U.S. 322, 326 n.
5, 99 S.Ct. 645, 649 n. 5, 58 L.Ed.2d 552 (1979) ("[J]udgment in the prior suit
precludes relitigation of issues actually litigated and necessary to the outcome of
527
the first action."); Mother's Restaurant, Inc. v. Mama's Pizza, Inc., 723 F.2d 1566,
1571, 221 USPQ 394, 398 (Fed.Cir.1983[ (to give preclusive effect to a particular
finding, it must have been necessary to the judgment in the prior case).
In concurring, Judge Rader added this: "the issue of Nidec's alleged infringement of
the '028 patent was not essential to the Special Master's finding in the New Jersey case. The Special
Master simply determined the existence of acceptable non-infringing alternatives to Rotran's
'028 rotor as required by the Panduit test for lost profits."
Apple cites the Third Circuit's holding in Jean Alexander, 458 F.3d at 255 for Apple's
proposition that "independently sufficient alternative findings should be given preclusive effect."
(Notice at 10.) However, the Third Circuit pointed out in that decision that there is a split among
the circuit courts on this issue and that the Federal Circuit holds the contrary view, citing
Comair, 49 F .3d at 1538-39. (Id. at 252 ("By contrast, the Courts of Appeals for the Tenth and
Federal Circuits have refused to give preclusive effect to alternative findings that were each
independently sufficient to support a judgment. See Comair Rotron, Inc. v. Nippon Densan
Corp., 49 F.3d 1535, 1538-39 (Fed. Cir. 1995) (holding that a finding was not essential to a
judgment for collateral estoppel purposes where judgment was supportable on other
grounds). . .").)
Thus, the Administrative Law Judge concludes that the jury's verdict with respect to
patent exhaustion is not preclusive of the issue of patent exhaustion that has been asserted by
Apple in this case. The Administrative Law Judge further concludes that Apple's Notice is
procedurally improper, for the reasons set forth by Samsung in its opposition.
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|